A reference to the statement will show that nearly 60 per cent of the liabilities to the public consist of interest-bearing deposits or, as they are sometimes called, time deposits or savings bank deposits. They form the largest individual item in the statement with the exception of current loans. Time deposits are so called because they are deposits made in the savings bank department of a bank and under the rules of the department are subject to a withdrawal notice of ten or fifteen days. Practically, they are payable on demand, as no bank now makes a practice of exacting the required notice, altho the majority still retain a clause to that effect in their pass books. All these deposits bear interest at the rate of three per cent compounded semi-annually.

The chief difficulty a bank experiences in this kind of deposit lies in the fact that a certain class of the public is inclined to look upon a savings bank account as a convenience as well as an investment; the two are not compatible. A time deposit requires a small reserve and a minimum of bookkeeping and a three per cent rate leaves a margin of profit to the bank, but to give three per cent on an account subject to frequent checking is another matter and would be likely to result in an expense to the bank rather than a profit. In fact, of late years many of the savings bank deposits, thru competition, have been allowed to develop into ordinary checking accounts.

Theory as well as experience in Canada has shown that no bank can afford to pay a higher rate than three per cent without seriously affecting its position. In fact an increase of even one-half or one per cent would change the present net profits of the majority of the banks into a loss.1 Deposits bought too dearly must be fully employed because interest and dividends must be earned in some way. Competition prevents a bank from lending money to legitimate enterprises at a higher rate than the market rate; consequently a bank paying a high rate for its deposits is forced to invest its money in risky undertakings, or else to maintain inadequate reserves, both very dangerous and undesirable expedients.

1 See Section 22, also Chapter on Bank Cost Accounting.

Fortunately, the bulk of the savings bank depositors are quite content to use their savings bank accounts for the purpose intended - a depositing place for their surplus money. Each person who keeps a bank account does so for his own convenience, but the result is an enormous control of credit placed at the disposal of the industries of the country thru the agency of the banks and their branches. In fact without these deposits banks could render but little assistance to the trade and commerce of the country. The steadiness of these deposits, the fact that by the law of average they can be relied upon to remain fairly constant in amount and that, except in very stringent times, they are constantly increasing, is the basis of the commercial credit system of Canada.