Higher Interest For Big Savers

Rising interest rates are bad news for mortgage borrowers, installment buyers, business people and just about everybody else. Last week the climb in interest rates became good news for anyone with a spare $10,000 lying around. On June 1, commercial banks began offering six-month, Government-guaranteed $10,000 savings certificates with interest equal to what the Government has to pay to large investors in order to sell six-month Treasury bills. Savings banks and savings and loan associations that market the certificates can pay as much as 1/4% above the Treasury bill rate. In the past year, inflation and the ballooning federal deficit have driven that rate from 5.192% to 7.160%.

The purpose of the new certificates --which have been authorized jointly by the Federal Reserve, the Federal Deposit Insurance Corp. and the Federal Home Loan Bank Board--is to induce depositors to leave their savings in the bank instead of withdrawing them and investing them in bonds and in mutual funds that specialize in high-interest-bearing securities. Such withdrawals reduce the money available for housing mortgages and place a drag on the entire economy.

The new certificates are attractive to investors because, with Treasury bills at their present rates, the deposits can yield more than 7% a year if the interest is compounded daily, a service that many banks are providing. To get that high interest from any other bank deposit, a saver would have to tie up his funds for up to four years instead of six months. Since the buyer of certificates gets his money back a half year later, he can turn around and reinvest it in an even higher-interest certificate if Treasury bill rates continue to rise.

The main drawback with the certificates is that they are themselves inflationary. Explains M. Todd Cooke, president of the Philadelphia Saving Fund Society, the nation's largest mutual savings bank: "Money is our raw material. If we have to pay depositors more to get it from depositors, then the cost of one of our products--mortgage loans--is also going to have to go up."

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