Getting The Most Out Of Your Commercial Bank

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Investing in a commercial bank (with a checking and savings account, for example) is a great start for a first-time investor. In fact, younger and younger adults are opening checking and savings accounts to save for their futures.

For our present needs we may restrict our discussion to two of the functions of the commercial bank. The first of these is the checking account, which has three advantages for the householder. First, a checking account is a safe place for funds which, if left in a household, might be lost, misplaced, or even stolen; second, a canceled check is considered as a valid receipt for an obligation which it has paid; third, the checkbook is a useful record of transactions. The costs for a checking account are not high and are figured, in most cases, by reference to the average balance of the account and/or the number of transactions (checks drawn and deposits made). Some banks have instituted a special form of checking account, wherein the depositor purchases the checks, usually at a nominal charge, and is then permitted to write as many checks as he pleases, without regard to a minimum balance.

Another important feature of the commercial checking account is the fact that a check is a "demand" on funds, and the deposits are termed "demand deposits," since they are payable on demand. This differs from savings funds, which are termed "time deposits," since, legally, their withdrawal may be restricted.

If all funds are placed on deposit and subject to checking, it is often a temptation to mingle the savings amounts with the everyday living expenses. For this reason, and also to encourage the habit of thrift, it is wise to establish a separate savings account.

The savings or thrift account, as operated by most banks, is an excellent depository for surplus funds. The interest rate varies with general business and money conditions, but is about 3 per cent at present, usually credited semiannually, and compounded if not withdrawn. The account is insured up to $10,000 by any bank, which is a member of the Federal Deposit Insurance Corporation. Over 90 per cent of present day commercial banks are members of the organization.

A savings account will permit the withdrawal of funds without delay under normal conditions, but all banks reserve the right to restrict that privilege when they deem it necessary. This is to protect themselves from heavy withdrawals in time of severe financial crisis. Under ordinary conditions this right is not invoked, but upon giving notice the bank may require all depositors to file a notification of withdrawal of funds and then to wait the legal period of from 30 to 60 days, after which the funds are payable.

Banks use many methods to compute interest on their savings accounts, but almost all of them use the semiannual interest period beginning January 10th and July 10th, and closing June 30th and December 31st respectively. Overactive accounts are usually penalized, since the bank cannot operate as profitably if the funds available to it for investment are constantly fluctuating. In reality, the true saver benefits most by leaving funds undisturbed.

Many people complain that the rate of interest of about 3 per cent is too low. They forget that a high degree of safety will always be coupled with a low rate of return and that this is a fundamental principle of all investment.

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