THE PEOPLE'S BANK

Evening Post, Volume CIX, Issue 122, 26 May 1930, Page 8

THE PEOPLE'S BANK

To many observers the Post Office Savings Bank is a prosperity barometer. They will view with misgiving, therefore, the fact that in the financial year ended 31st March, 1930, withdrawals from the bank exceeded deposits by £1,014,139. In the previous year the excess of withdrawals was £859,560. But this comparison scarcely sets out the position exactly. The year 1928-29 saw the excess of withdrawals diminishing, and in the last quarter there was an excess of deposits amounting to £390,640. In the first quarter of 1929-30 this movement was maintained. Deposits exceeded withdrawals by £371,0.01. Then the ebb tide set again, and excess withdrawals rose steadily as follow: September quarter, £38,657; December, £367,678; March, £978,805. The September and December quarter movements may be explained as due to winter unemployed and the holidays respectively; but these explanations do not cover the sudden jump in the March quarter. It is possible that both these causes contributed something, but not all. The further explanation is probably the Government's own offer of 5J per cent, for debenture's and inscribed stock. This 'offer, made early in January, no doubt attracted big sums from Savings Bank balances. The Government, in brief, paid 1-| per cent, (the difference between Savings Bank and debenture interest) to transfer the money from one pocket to the other. Of course, it must be remembered that there , was consideration given for this additional interest. The 4 per cent, is paid on monthly balances, with deposits withdrawable at a minute's notice. The s^? per cent is for loans for seven years.

The probability that this explains in part the withdrawal movement means that the Savings Bank figures are not an exact index of prosperity. There are other facts which should also be taken into account. One fact is that even a million sterling excess withdrawals do not reduce the Savings Bank balances, as the annual interest, accruing is approximately one and three-quarter millions, so that depositors, though they have taken out a million more than they actually put in, are still three-quar-ers of a million better off. They have not used the whole of the interest. In 1927-28, when excess withdrawals totalled £2,973,931, the interest and almost a million and aquarter additional were withdrawn. That was because an increase in the commercial bank deposit rates attracted the Savings Banks' big depositors. To guard against such an embarrassing movement in the future the Government then reduced the maximum interest-bearing deposit from £5000 to £2000. The fact that deposits are still leaving the Savings Bank for investment elsewhere (though the "elsewhere" may be the Government's own debenture issue) suggests a doubt whether the £2000 maximum is not still too high. If the Savings Bank is to remain strong and unassailable, and to fulfil its purpose as a thrift institution, it should not be subject to the fluctuations which are caused by the movement of investment money. "Saved" money comes in slowly and moves •out slowly, but investments are liable to move swiftly. The Savings Bank cannot move swiftly to counter these investment movements. It must maintain i*s interest terms fairly steadily. To do this and to preserve its* stability it must keep clear of the investment field, where numerous other institutions are competing for money-