A sum of money deposited or placed in a bank is called a deposit. Most banks grant interest on these deposits, but some do not. The Scotch banks have carried this practice to the greatest extent, and the deposit system forms a very important branch of the banking system in Scotland.
Those regulations which the banks have established as the rule of the transactions between themselves and the depositors are the following : -
The depositor may place in the bank any amount of money he pleases above £10.
The whole or any part of the deposit may be withdrawn at the pleasure of the depositor without previous notice.
Interest is allowed on the deposit from the day it is lodged in the bank until the day it is drawn out. Pro-vided, that is, it has been allowed to lie a month, no interest being paid upon a sum deposited for a shorter period.
The balance of a current account is allowed interest at the rate of 1/2 per cent. less than if it were a permanent deposit, when calculated on the minimum for the month, or one per cent. less when calculated on the daily balance.
The following are the advantages ascribed to the deposit system:-
1. The system of deposits is advantageous to the lower classes-in providing a place of safety for their deposits-in granting them interest on their savings-in encouraging habits of frugality-and thus often enabling them to advance in society.
"The deposit branch divides itself into two parts :-There is, first, what is called a running account, where the party pays in from day to day the whole surplus funds in his hands, and on which he receives interest. These depositors are, in general, shopkeepers, and merchants, and traders, more particularly in large towns; and in these deposit accounts there is found at their credit, at the close of every day, the whole amount of the money for which they have not immediate employment in their trade. The second branch of deposits consists of small sums placed in the hands of the bank at interest, which have been in general the savings of their industry, and which are put into the hands of the bank to accumulate, and on which they may operate not in the way of a running account. They may receive a partial payment whenever they please; but in general these deposits are very seldom removed, excepting when an individual has occasion to build a house or begin business. This class of deposits is distinguished from running accounts by the name of deposit receipts." l
"What class of the community is it that makes the smaller deposits? - They are generally the labouring classes in towns like Glasgow. In country places, like Perth and Aberdeen, it is from servants and fishermen, and just that class of the community who save from their earnings in mere trifles small sums till they come to be a bank deposit. There is now a facility for their placing money in the provident banks, who receive money till the deposit amounts to £10. "When it amounts to £10 it is equal to the minimum of a bank deposit. The system of banking in Scotland is just an extension of the provident bank system. Half-yearly or yearly these depositors come to the bank, and add the savings of their labour, with the interest that has accrued from the previous half-year or year, to the principal. And in this way it goes on, without being at all reduced, accumulating, till the depositor is able either to buy or build a house, when it comes to be one, two, or three hundred pounds, or till he is able to commence business as a master in the line in which he has hitherto been a servant. A great part of the depositors of the bank are of that description; and a great part of the most thriving of our farmers and manufacturers have arisen from such beginnings. And in regard to the deposit receipts, I may just mention what is generally the way in which they are granted. To-day a person from the country appears at the bank, it may be with £20 or £30 or £50. We probably never see him again till that day twelvemonth, but we are sure of seeing him about that very day. If he has £20 in the bank, he may come and say, ' There are four guineas; you will give me a receipt for £25.' He knows well that the £20 has earned 16s. interest; and I do consider that the four guineas are just the savings of the year. He goes away with his new receipt, and returns on that day twelvemonth; then again it is added to, and thus accumulated-and so in many instances throughout the country." l
1 Lords' Report, p. 80.
2. The system of deposits is advantageous to capitalists in furnishing them with a secure mode of employment of capital, either for a longer or a shorter period, at their pleasure.
"What class of persons form the large and steady depositors in the Scotch banks?-The middling and the lower order of society, industrious poor people, who are saving their money, and small capitalists who have raised a moderate sum of money, upon the interest of which they live.
"Do many persons live upon the interest of their deposits, as far as you know?-Yes, a great many." 2
"Do you know whether it is the practice of persons who have small capitals in Scotland, to invest them in the public securities in London, or to deposit them with the banks in Edinburgh?-I believe, almost universally, to deposit them with a Scotch bank.
1 Commons' Report, p. 159. 2 Lords' Report, p. 165.
"And they live upon the interest of what they so deposit, in the manner as persons here live upon their interest on stock?-Yes; they often look to the permanent capital with a view of leaving it at their death, taking the interest during their lives." 1
"The deposit accounts are of two kinds : one kind from the commercial people, who have large sums that they wish to keep in a disposable form, waiting an opportunity of any investment which may occur. Of the operating deposits, there are others who keep the money until a favourable turn in the Stock Exchange enables them to invest it there. And there are others, respectable householders, who keep it for the purposes of their family expenditure. I reckon that these and the sums due upon them average one-half of the aggregate amount of a bank's deposits." 2