Because of the difficulty encountered in disposing of their mortgage holdings in time of need, savings banks invest heavily in bonds, which possess great liquidity. The savings banks are usually permitted by law to hold the obligations of such governments as (1) the United States, (2) the state in which the bank is located, (3) any local subdivision thereof, (4) any outside state or city meeting certain tests of safety, such as adequate population, limit of indebtedness, and a satisfactory-record in honoring its obligations in the past. A few states permit savings banks to purchase bonds issued by the more stable European governments.

The investments of savings banks in nongovernment securities are usually limited. The purchase of stocks is generally prohibited, and in some states even bonds of industrial and public-service corporations are forbidden. Savings banks in New York State must confine their nongovernment investments exclusively to first-mortgage bonds of a selected list of railroads. These bonds, especially if listed on the Stock Exchange, can readily be sold by the bank if it is in need of cash, but until the middle of 1921 this advantage was offset by the weakness of bond values. These declines were caused not by any doubt as to payment of interest or principal, but by the low yield as compared with the high rate of the money market. Nor was there any opportunity to adjust the yield, for these securities usually had a long maturity.