Now for NOW?

A bill for small savers

Finally, some relief may be on the way for the inflation-battered small saver. Last week the Senate Banking Committee reported out a bill co-sponsored by Chairman William Proxmire of Wisconsin and Alan Cranston of California that aims at helping little depositors get a better return on their money.

The measure, which the full Senate is expected to vote on this month, would authorize interest-bearing checking accounts as of Sept. 30, 1980. Then the so-called NOW (for negotiable order of withdrawal) accounts, which savings and commercial banks have been offering in New England since 1972 and in New York for the past nine months, would be allowed to spread across the nation.

The bill would also lower from $10,000 to $1,000 the minimum amount required to buy the popular six-month money-market certificates that were introduced in mid-1978. A price cut in these certificates, which are pegged to the six-month Treasury bill rate, now 10.11%, would be heartily cheered by the estimated 70% of savers who are not able to buy them at their present high cost.

Chances that the Senate bill will become law seem no better than fifty-fifty. Reason: the bill would also change the federal banking law's Regulation Q, which limits the interest that can be paid on deposits, currently 5 1/4% for passbook savings at commercial banks and 5 1/2% at savings banks. Under the bill, these ceilings could be raised by Y2 point a year over an eight-year period starting in 1982 and then eliminated entirely. But executives of savings banks and savings and loan associations argue that they cannot compete against commercial banks for deposits if they lose their 1/4 point interest-rate advantage. Also, they fear they will be unable to pay higher rates because they have many fixed-rate, long-term mortgages on which they get an average return of only 8.8%, while commercial banks are getting more than 13% on a large part of their shorter-term loans.

The bill's backers, which include the Administration, reply that even now savings institutions are losing deposits because people are switching to money-market mutual funds, which can yield more than 10%. They also note that the measure would allow savings banks to fatten their income by making short-term consumer installment loans, on which the rates can be as high as 18%. If the thrifts succeed in killing just the Regulation Q provisions of the bill, as seems possible, NOW accounts and $1,000 money-market certificates could both be available for all savers by the end of 1982.

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