Moneymen offer investors new ways to keep cash and earn high interest
20% annual interest—Trust Deeds Safely Secured... 18% United States Government Guaranteed Securities ... $3,000 earns 15.086% per year for 26 weeks ... 15% interest on as little as $1,000. No risks. No penalties. No fees.
Those are some of the advertisements that try to attract Americans these days, in newspapers and bank windows, as well as on television and billboards. People are being swamped with offers for investment opportunities, and savvy consumers are now flocking to newly popular savings devices, including negotiable order of withdrawal (NOW) accounts, money-market funds, certificates of deposit, commercial paper and U.S. Treasury bills.
A savings revolution is sweeping the U.S. Only a decade ago, most people were satisfied to put any money left over from the family budget into a savings account at the bank, where it earned 4.5% interest; into a checking account, where it earned no interest at all; and perhaps into a few safe stocks. But today millions of people are taking money out of those traditional savings havens and putting it into accounts that often earn a return of as much as 17%. Says Walter Wriston, chairman of New York's Citibank: "Americans are not stupid. They have been seeking a better return on their money and getting it."
This year $43 billion has poured out of banks, savings and loans, insurance companies and other investments into money-market funds and various new accounts. In the month of April alone, savings and loans had a record $4.6 billion net loss in deposits.
The transfusion of cash into new institutions is putting severe strains on some older ones. An estimated 90% of the 4,560 savings and loans are now losing money. Industry Analyst Jonathan E. Gray of Sanford C. Bernstein & Co. warns that, if interest rates do not abate, perhaps as many as one-third of them will close down in the next five years. Two weeks ago, the Economy Savings and Loan Association of Chicago became the first federally chartered institution to fail in a decade. Many other S and Ls will be forced to merge, as the stronger take over the weak. Last year 142 mergers took place among savings and loans, as compared with only 42 in 1979. Seventy more have occurred so far this year. Says George Salem, an analyst with Bache Halsey Stuart Shields: "S and Ls are in a state of shock from which they may never recover."
The financial jitteriness is even being felt in the Oval Office. American moneymen in past weeks have been voicing skepticism about the Reagan Administration's tax cut plans and consequently bidding up interest rates. Last week the President said that the financial markets were misjudging his plans, adding: "I have never found that Wall Street is a source of good economic advice."
American banks, those stately citadels of stability, are going through an upheaval. A few, like New York's Bankers Trust, have virtually gone out of consumer banking and now lend money almost exclusively to businesses. California's Bank of America and others have instituted heavy minimum deposits and stiff fees on small accounts. Still others, like New York's Citibank, are aggressively trying to win new customers through improved services and bank-at-home computer terminals.