The customer who keeps his account in credit should ask his banker: “What average balance must I maintain in order that your people will work my account free?” That sum ascertained, he can act upon the advice contained in this chapter.
CHAPTER V
DEPOSIT-RECEIPT CUSTOMERS
A deposit-receipt, which is not a negotiable instrument, cannot be transferred by one person to another. Where the receipt is issued in more than one name, instructions should be given to the banker as to whether, in the event of withdrawal, the note is to be signed by all or by any two or any one of the depositors. Should no instructions be given, then all must sign when a withdrawal is made, or when the interest is taken. These receipts, as a rule, are issued subject to either seven or fourteen days’ notice of withdrawal; but the notice, in practice, is not enforced, bankers merely writing it upon the note in order to protect themselves in the event of a run. Most banks, however, decline to pay interest unless the sum has remained in their possession for at least one month.
The large London banks, though they compete eagerly the one against the other for well-secured advances and loans, have closed up their ranks against the depositor, their practice being, both in London and the suburbs, to allow 1½ per cent. below Bank rate upon money left with them on deposit, every alteration in the rate being advertised in the leading papers. All one has to do, therefore, in order to ascertain the London rate for money on deposit-receipt is to deduct 1½ from the Bank of England rate which may be seen in the city-article of every newspaper. Whether or not certain banks offer special rates to favoured individuals is a matter of opinion; or, again, they may bid higher for large sums for fixed terms; but the small depositor may take it for granted that, with their rates on loans and advances reduced by competition among themselves, the banks are determined to keep down the deposit rate. In fact, the large London bankers have united for this very purpose, though it must be remembered that the agreement is not binding at the country branches of the London and provincial institutions.
A banker is a middleman who borrows from depositors at a rate in order that he may lend to others at a higher rate, the difference between the two rates being his margin of gross profit. A certain portion of his deposits, we know, he obtains in exchange for granting banking facilities, and upon the rest he allows a rate of interest, while he has to maintain a reserve of so-called cash and gilt-edged securities against the danger of sudden withdrawals and panics. At the moment the companies cannot control the advance rate, or fix from time to time a minimum rate for secured advances; but in London we see that they have succeeded in getting the depositor under their thumb, thereby, of course, increasing their profit margin at his expense. Their next move will probably be an attempt to corner the borrower against tangible securities, as has been successfully accomplished by the banks in Scotland. The number of English banks is rapidly decreasing through absorptions and amalgamations, so, in the end, it is more than probable that we shall see a monopoly, and that all the large banks will one day unite for the purpose of fixing, at each change of the Bank rate, their deposit rate, and, also, their lowest or minimum rate for secured advances.
In the provinces the banks, when loanable capital is cheap, are able to lend and to discount at higher rates than in London, so the country deposit rate never falls so low as that of London. Neither, however, does it advance so high when loanable capital is dear, because the provincial banks then find some difficulty in increasing their rates upon bills and loans proportionately. The following table will enable one to see the difference between the rate allowed in London and the country:—
| Bank Rate. | London Deposit Rate, 1½ below Bank Rate. | Country Deposit Rate. |
|---|---|---|
| 5 | 3½ | 3 |
| 4½ | 3 | 2½ to 3 |
| 4 | 2½ | 2 to 2½ |
| 3½ | 2 | 2 |
| 3 | 1½ | 1½ to 2 |
| 2½ | 1 | 1½ |
| 2 | ½ | 1½ |