A Penny Saved Is a Penny Wanted

What the the thrifty American? He is saving less and spending more. Much to the consternation of financial experts, the rate at which the public socks away its after-tax income fell from the normal 6% to only 4.8% during the first three months of 1966 #151; tge lowest levels in a dozen years. Simultaneously, the capacity-straining expansion of the U.S. economy has brought an unprecedented demand for borrowing to buy everything from color TV sets to new factories. With the Federal Reserve Board keeping credit tight to restrain the economy, there isn't enough money to go around. One result is the most frenzied scramble for savings accounts in years. Nobody is really certain whey the public is saving less, but economists have lots of theories. Hedge Buying against inflation has sopped up some money. So have the rising cost of living, higher social security and local taxes, and the speed-up in federal income-tax collections. More important, in a basic shift in personal habits, fickle depositors have been bypassing traditional savings institutions and investing funds directly into high-rate, low risk outlets as tax-free bonds, treasury notes and mutual funds. From only 2.5 billion in the final three months of last year, such new invesment shot up to 9 billion during the first quarter of 1966. How They Rate. In the resulting battle for savers' favor, there are three prime adversaries: commercial banks, savings banks, and savings and loans associations. All have been wooing funds by raising interest rates on deposits to levels not seen since 1929. Many commercial banks in New York and few from Chicago, SanFrancisco and elsewhere have been attracting money from all over the U.S. by paying up to 5 1/2%. Trying to keep up, some savings banks will lift their rates on ordinary savings accounts from 4 1/2% to 4 3/4% next month. Many savings and loan associates have already boosted theirs to 5%, but it is the fist time in 30 years that the associations have found themselves unable to outbid all competitors for savings.

Commercial banks are ahead in the savings war, having gained $6.7 billion in savings so far this year, while their rivals have been hard hit. April withdrawals alone drained $390 million from the nation's 505 savings banks and $746 million from 6,200 savings and loan associations, the largest losses in history for both. Though the loss amounts to less than 1% of the $111 billion that 40 million people keep in savings and loan associations, it prompted cries for help from thrift officials, spurred a congressional investigation and led the Johnson Administration to propose legislation to cool the rate race.

Financial Monsters." The reason that commercial banks have gained while others have lost is that bankers have found a way to exceed the 4% interest ceiling on easily withdrawn passbook savings. They have done this by selling "certificates of deposit," which pay up 10 5 1/2% for funds left on deposit for a fixed time, usually three months. The so-called C.D.s, in denominations as low as $25, have attracted $37 billion now constitute a volatile one-fourth of interest-bearing deposits in commercial banks.

Worried savings and loan men insist that pint-size C.D.s steal their customers, and the Administration seems to agree. Treasury Secretary Henry Fowler wants Congress to empower federal bank regulators to roll back the maximum interest to 5% on C.D.s of less than $10,000. House Banking Committee Chairman Wright Patman wants to outlaw all C.D.s on the ground that they have become "financial monsters." Congress will probably give the Johnson Administration about what Fowler asked. Whether it will act fast enough to protect savings and loan associations from heavy savings losses after their semiannual dividend payments next month is doubtful.

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