The amended Federal Reserve Act provides that the reserve against time deposits shall be 3 per cent. Time deposits include, among other items, all savings accounts and certificates of de posit which are subject to not less than 3o days' notice before payment. This low reserve requirement makes savings accounts more profitable to the bank or makes it possible to pay higher rates of interest on deposits. The Federal Reserve Board in its early interpretation of the Federal Reserve Act took the position that the broad provisions of the law respecting time deposits, savings accounts, and certificates of deposits should not be made the means of any large reduction of reserves by a transfer to those forms of deposits which are in substance demand deposits; it in sisted that the full reserve, at the rate prescribed for demand deposits, be carried against all savings accounts and all time deposits whether on open account or certificate, which are subject to check or which the bank has been notified are to be withdrawn within 3o days.
"Time deposits, open accounts" are defined to include all ac counts, not evidenced by certificates of deposit or savings pass books, in respect to which a written contract is entered into with the depositor at the time the deposit is made, that neither the whole nor any part of such deposit may be withdrawn by check or otherwise except on a given date or on written notice given by the depositor a certain specified number of days in advance, in no case less than 3o days.
Savings accounts include those accounts of the bank in respect to which, by its printed regulations, accepted by the depositor at the time the account is opened, (I) the pass-book, certificate, or other similiar form of receipt must be presented to the bank whenever a deposit or withdrawal is made, and (2) the depositor may at any time be required by the bank to give notice of an intended withdrawal not less than 3o days before a withdrawal is made.
A time certificate of deposit is an instrument evidencing the deposit with a bank, either with or without interest, of a certain sum specified on the face of the certificate, payable in whole or part to the depositor or on his order: (I) on a certain date, speci fied on the certificate, not less than 3o days after the date of the deposit, or (2) after the lapse of a certain specified time subse quent to the date of the certificate, in no case less than 3o days, or (3) upon written notice given a certain specified number of days, not less that 3o, before the date of repayment, and (4) in all cases only upon presentation of the certificate at each withdrawal for proper indorsement or surrender.
The rate of interest paid on savings and time deposits de pends upon the intensity of competition among the banks of the locality and upon the condition of the money market. Whether the banks will insist upon having 3o days' notice depends also upon the intensity of competition, upon the amount demanded, upon the condition of the bank at the time of the demand, and upon the customer. Whether the bank will compound the in terest quarterly, semiannually, or annually, and whether a de posit begins to draw interest immediately, or at the end of 3o days, or at the beginning of the next quarter, are likewise deter mined by competition.' Before the Federal Reserve Act was passed, the savings department in national banks existed only by sufferance of the Comptroller of the Currency, the National Bank Law giving no explicit sanction for it. Although practically all banks have long issued certificates of deposit for dormant money, the savings department as such, issuing pass-books and operating along savings bank lines, is a recent development. It is now custom ary for banks to establish a savings department more or less separate from the rest of the bank. The methods of business are so different that this is found expedient. A well-placarded and advertised savings department is a good avenue of business for the other departments of the bank. Special inducements, Christmas clubs, vacation clubs, partial-payment bond purchases, savings boxes, dime savings, etc., are used to attract customers, many of whom become permanent patrons of the bank in other lines.