§ 6. Security for thrift. It is essential to sound policy that savings banks have the right to require depositors to give notice of intention to withdraw deposits. The period of such notice varies from a minimum of ten days (almost invariably now the minimum is thirty days) to a maximum of about sixty days. In ordinary circumstances it is not needful or usual for a bank to exercise this right, but it is a needful safeguard in times of commercial crises. This requirement of notice is greatly to the advantage of depositors collectively and thus of the community as a whole. It is not an undue limitation of the rights of the individual depositor. It is unfair for the individual, in a period of financial stress, to seek his own safety in a manner that is impossible for all, and thus to endanger the interests of all. The Federal Reserve Act, by making it possible for loans to be had at any time (through member banks) on good security, reduced the danger of runs on savings banks.

Stock and mutual savings banks are both found in only two states. New Jersey has 26 mutual and one stock, New Hampshire 45 mutual and 11 stock savings banks. The other stock savings banks are in the District of Columbia, one southern and seven western states.

Savings banks are subject to the supervision and inspection of the banking departments in the several states, a fact that exerts a salutary effect, though not insuring absolutely against mistaken judgment or dishonesty on the part of the bank officials. The average losses to deposits in savings banks have been about one- fifth of 1 per cent of total deposits. It is highly desirable that a plan of insurance of deposits should be worked out which would make savings deposits absolutely safe. This measure is even more important than that repeatedly proposed by the Comptroller of the Currency to insure or guarantee all deposits of $5000 or less in national banks, the effect of which would be to bring from hiding-places many millions of dollars of hoarded money, largely prevent in the future runs on banks, and, more than anything else that could be done, unify and solidify the entire banking system. It would doubtless also greatly stimulate the saving habit among the people and increase the use made of the savings banks.

The depositors in savings banks have a direct legal claim on the bank as a corporation. The bank's only means of payment are its assets, consisting of claims upon the owners of such wealth as houses, factories, railroads, electric-light plants, good roads, and school buildings. Thus virtually the depositors have by their savings made possible the building and equipping of these actual forms of wealth, and have an equitable claim upon the usance of them, which claim is met by the payment of interest and dividends by the savings banks. Viewed in this way, the great social importance of the savings function appears, and the importance of developing the savings institutions.

§ 7. Postal savings plan. In many countries of the world the governments have not only authorized private, corporate, and trustee savings banks, but have provided public agencies where it is possible for the citizens to deposit small amounts. Thus municipal, and what are called communal, savings banks are operated by many European cities; but the most effective and widely used agencies for the purpose are the national post-offices. Postal savings banks, or postal savings systems as divisions of the postal service, are now found in all the larger countries of the world, and in many smaller ones. The United States of America was almost the last civilized country to establish such a system, which was authorized by act of Congress in 1910, and went into operation in a few designated cities in January, 1911. The number of offices at which it was in operation was rapidly increased, and deposits began to flow in at the average rate of more than a million dollars a month, and then more rapidly until the war period. The maximum balance to the credit of depositors was attained in March, 1919, when it was $177,000, 000, from which point the withdrawals have pretty regularly exceeded the new deposits each month. This may be explained by the rise of the general interest rate, the opportunities for good investments of small sums in Liberty Bonds, and heavy withdrawals by immigrants for remittance to Europe.

The funds of the postal savings system are deposited in banks belonging to the Federal Reserve system, which must deposit with the Treasurer of the United States designated Kinds of bonds (national, state, and municipal) as security, and pay interest at the rate of 2 1/2 per cent on the amount of the deposits. The 1/2 per cent difference between this rate and that paid to individuals goes far toward paying the expense of operating the system.

Provision is made for the issue, in exchange for certificates of postal savings, of bonds bearing interest at the rate of 2 1/2 per cent. Postal savings bonds are exempt from all kinds of taxes, federal and local.

§ 8. Advantages and limitations of postal savings. As compared with ordinary savings banks the postal savings system has certain advantages.

(a)   It protects the small depositors from the danger of dishonest private bankers who have preyed upon immigrants in the larger cities. To foreigners, accustomed to the postal savings plan in their home countries, it is especially useful.

(b)   It gives to every depositor the greatest safety possible, as "the faith of the United States is solemnly pledged" for the repayment of depositors.

(c)   It brings a savings institution to many a small town and rural place formerly entirely lacking in facilities for small depositors. The benefit of this has not immediately appeared to be great, but may in time prove to be.

(d)   It pays interest from the first of the month following the date of deposit, whereas the usual practice of savings and commercial banks is to pay only from the beginning of the quarter year or half year.

(e)     It provides for the exchange of deposits for bonds hearing a higher rate of interest - a unique feature greatly simplifying for the small saver the process of buying bonds for more lasting investment.

In some respects, however, the postal savings system offers less favorable conditions than do ordinary banks, and its usefulness was deliberately restricted by provisions in the law, as has been clearly pointed out and deplored by competent critics. The post-office will not receive deposits of less than one dollar, whereas regular savings banks usually accept for deposit as small an amount as ten cents. It pays only 2 per cent interest (only half as much as the regular savings banks now pay) and only for a full year instead of quarterly. Only simple interest is paid, not interest compounded automatically, as in the case of banks. These and other features of the law so greatly restrict the usefulness and appeal of the system that its failure to grow is not surprising. With wise and proper changes it should be possible to refund a large part of the national debt in securities issued in small denominations through the postal savings system.

§ 9. Collection of savings and education in thrift. Small savings have been encouraged in many places by penny provident funds, dime savings banks, and school savings funds, which have been conducted at public schools, social settlements, and factories, by school officers and by charitable and educational societies acting through canvassers. These plans all call for much personal effort and cost, which must be provided by volunteer services and private gifts. These plans being undertaken mainly as a means of education in thrift and in the related moralities, their results are not to be measured merely by the magnitude of the sums collected. They are not rivals of the ordinary savings banks, but rather auxiliary methods of encouraging their use. The funds collected by these agencies are usually deposited in local savings banks, and depositors are encouraged to open individual accounts there, whenever they have considerable sums saved.

Before the Great War began, public schools in Germany were equipped with automatic machines vending savings stamps in as small denominations as ten pfennigs (2 1/2 cents) when a coin was dropped into a slot. This method could be used effectively in connection either with the postal savings system or with a local savings bank. It ought to be made easy to deposit funds at every schoolhouse, at every post-office, at every factory counter on pay-day, and wherever people pass in numbers. Allurements to foolish expenditures meet old and young at every turn; to spend the nickel or the dime is made all too easy, whereas to save it and deposit it in a safe place too often calls for wasteful and discouraging efforts from the person of small means.