1. Mutual or Trustee Savings Banks. The savings bank started as a mutual savings association and is commonly regarded as a benevolent institution. A mutual savings bank is a financial establishment which receives deposits up to a fixed maximum amount from individuals, provides safe-keeping for the funds and, having aggregated them, invests them in securities declared by the state legislature legitimate for trust funds; the interest from these investments, after the bank's expenses are deducted, accrues to the depositors in proportion to their deposits. The relation between depositor and bank is one of trust; the funds of the bank are held by its officers as trustees; the assets, profits, and losses are distributed ratably among depositors, and the officers get no profits, but receive trustee fees. The rate of interest on the investments is generally very low, for the reason that safety rather than earning capacity guides the legislature in defining eligible investments. The deposits received are not subject to check, nor are they subject to withdrawal except by pass-book and due notice of 30, 60, or 90 days, varying with the bank and the amount to be withdrawn. The pass-book constitutes the contract of deposit; the terms are described therein; entries and signatures in it become very important from a legal point of view. The depositor is moved to make the deposits by the motive of thrift and the interest inducement offered by the bank; he does not expect to withdraw them soon inasmuch as they represent his savings. He does not have the privilege of paying by check which the commercial bank accords nor does he get short-term accommodation. The savings bank invests in long-term securities and not (though recently to a limited degree in some states) in short-term commercial paper; its deposits turn slowly and it relies on its ability, within the period of notice of intended withdrawal of deposits, to sell its securities at other than sacrifice prices. Mortgages and bonds form the bulk of such a bank's investments.
2. Joint-Stock Savings Banks. In the West and South the dominant type of savings bank is the joint-stock bank, an institution which, like a commercial bank, is conducted for the profit of the shareholders. Deposits are received as in other savings banks, but instead of the depositors being paid a net return from the investments above expenses, they receive a definite rate of interest as arranged at the time of making their deposits. The margin between the earnings of the investments and the interest paid on deposits constitutes the sum that covers expenses and profits to the stockholders. These net profits the shareholders divide on the basis of shares owned.
While joint-stock savings banks may contribute as much to the economic and social welfare as trustee savings banks, they are purely private business enterprises and not eleemosynary institutions. In the trustee savings bank the risk of high or low earnings and of loss of principal is borne by the depositor; in the joint-stock bank the shareholders assume these risks and guarantee the interest and principal to the depositor. In the former the depositors, being creators of a trust, have the control; in the joint-stock bank they are simply creditors and have no voice in its management. The mutual type prevails in New England and the eastern states where the historical and social conditions are favorable to it, where the communities are old, sentiment strong, and a philanthropic and public-spirited attitude is prevalent; it is not adapted to the West, which is dominantly commercial, nor to the South still impoverished from the Rebellion and lacking on the whole a thrifty population. The trustee who starts a mutual bank gains no financial advantage from it; in fact, he assumes a large risk and responsibility to the community. He must be a man of highest type, holding the unswerving confidence of the depositors, not only as to personal character but also as to business capacity; he acts primarily from philanthropic motives, although some lawyers and other business men may promote mutual banks for the purpose of gaining clients.
3. Guaranty and Other Types of Savings Banks. New Hampshire is unique in having a hybrid type of savings bank, combining the chief features of the two previously mentioned types. Instead of capital stock and shareholders, this type of savings bank has "special deposits" and "special depositors." It pays a certain stipulated rate of interest to its general depositors, and any surplus earnings go to the special depositors. The special deposits constitute a guaranty fund for the general depositors and are limited to 10 per cent of the total deposits. Except for their name and the method of determining their amount, these special deposits have all the characteristics of the capital stock of joint-stock banks.
There are many other kinds of savings banks which are too numerous to describe here; for instance, the municipal savings banks, school savings banks, postal savings banks, and various groups of co-operative credit institutions, such as building and loan associations, farmers' co-operative credit societies, and the new farm loan bank system. The co-operative credit institutions, while formed primarily to provide on their joint credit long-term credits on realty at lower rates than the co-operators could obtain on their individual credit, tend to fulfil much the same social and economic ends as other savings banks.