Newspaper article THE JOURNAL RECORD

Final Steps in Deregulation of Deposits Take Effect Jan. 1

Newspaper article THE JOURNAL RECORD

Final Steps in Deregulation of Deposits Take Effect Jan. 1

Article excerpt

NEW YORK - Jan. 1 marks the completion of a historic change in consumer banking.

On that date, the final step will be taken in the deregulation of the interest rates that banks and savings institutions can pay on deposits.

In theory, it is an important occasion - freeing the standard checking and savings account at last from the constraints of government-imposed limits on interest rates.

But in practice, it doesn't appear likely to bring any drastic changes. The major benefits of deregulation for savers have already occurred.

Starting in December 1982, banks and thrift institutions were permitted to offer day-to-day savings accounts, with limited checking privileges, paying money market rates.

Shortly after these money market deposit accounts, or MMDAs, made their much-heralded debut, institutions also were allowed to offer checking accounts, known as Super-NOW accounts, paying market rates.

At first, the rules dictated that competitive rates could be paid only when at least $2,500 remained on deposit in the account. Last Jan. 1, the minimum was lowered to $1,000. With the arrival of 1986, it goes to zero.

That doesn't mean, however, that banks and thrifts across the country are likely to get into a fierce bidding war for small deposits of $50 or $150. The ""money market passbook account'' holds little appeal for them.

In recent years, in fact, many institutions have imposed rules that actively discourage very small savings deposits. A bank that used to pay interest on an account with a balance as small as $5 or $25 now may pay no interest on accounts below $100, $250 or even $500.

What amounts to negative interest, in the form of periodic maintenance charges on small accounts, has become a common practice.

The arrival of full deregulation will probably encourage increasing use of the already common practice of ""tiering'' the interest rates paid, depending on the amount of money in the account. …

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