In the country, we must remember, there is no combination or ring of bankers who meet to decide the rate, which, therefore, is not “fixed” from time to time on the basis of the Bank rate, though, of course, the country deposit rate moves up and down in sympathy with the Bank of England’s published rate of discount or official minimum, as it is called. There is, moreover, some competition for deposits in the country, but it is very slight; and, unless the banker think that a man may be useful, he seldom bids appreciably higher than his rivals for his money. The small private banker, it is true, may offer more interest, but a depositor should take care to examine his balance-sheet before he entrusts him with either his spare capital or his savings.
A few of the purely provincial joint-stock banks, whose branches are situated in a manufacturing centre, and which, in consequence, are never overburdened with working resources, offer higher rates than the great companies, but they are the weaker of their kind, and it is therefore questionable whether one should lend to them. In every probability one’s principal would be safe, but it would not be so safe as in the hands of the really large London and provincial institutions, whose reserves afford the customer a much better guarantee; consequently it is always wise to consider whether the additional risk, be it never so small, is worth taking for the slight increase in the rate.
Of course the country depositor will take care to inquire what rates the other large banks in his town are granting, so that he may judge whether his own banker is allowing him a fair rate. Again, if the amount of his deposit be, say, over £1,000, he can sometimes obtain a special rate; and he may rest quite assured that, if he do not interest himself in the matter, the bank-manager will allow him the lowest rate possible, for as there is not a fixed minimum it follows that some, more especially during certain conditions of the market, are obtaining better rates than others. A little pressure will occasionally induce the manager to quote, as he quaintly calls it, a “special” rate of interest, if he consider the customer’s name be worth keeping on his books. It may be added that some people, in order to minimize their risk, keep their current accounts with one banker and deposit with another.
We can now refer to the table of rates on page 48. The country rate, of course, is stated approximately, for we have seen that under certain conditions the customer may possibly obtain more. Glancing at the table, we find that when the bank rate is at 2, the London depositor receives ½ per cent. and the country depositor 1½. If the London customer deal with a London and provincial bank, it will obviously pay him better to deposit at one of the country branches. He should, therefore, if he consider that money is likely to be cheap for some considerable time, give notice in London and transfer his deposit to the country. If his banker object, he can deposit with any large, well-managed provincial bank. With the Bank rate at 2½ the move would pay him, but when it rises above these figures the rate is either equal or in his favour. A person who keeps two banking accounts, one in London and the other in the country, can make this move with the greatest of ease; and by transferring his deposit from the one to the other as the rate favours him, he may easily increase his interest. Conversely, with a high bank rate it may pay the country depositor to transfer his principal to London. There is no occasion to let the banker see the move.
In London and the great cities a large proportion of the deposits at interest, especially during periods of depression, would represent capital temporarily withdrawn from trade, and awaiting either more profitable investment or an increased demand and rising prices. It is this accumulation of idle capital that tempts the company-promoter from his lair, and sometimes results in a Stock Exchange boom, whilst it always produces an increased demand for the so-called gilt-edged variety of securities and a consequent rise in their price. The country depositor, however, even when he leaves fairly large sums at interest, is generally waiting to invest his money in house property, which will return him from 5 to 6 per cent., or to place it out on a first mortgage at from 3½ to 4 per cent. In the first instance, he is careful not to purchase old property that will swallow up much of his rent in repairs. Cautious by nature, he shakes his head dubiously at the glowing prospectus of the promoter, and refuses to believe in the high-toned and cunningly tuned leaflets with which the bucket-shops favour him, for he likes to see his investment, to feel it, to walk upon it. Paper does not satisfy his soul; he is not even without his suspicions of banker’s paper; but when he possesses house property, then all he has to fear is the Almighty and a bad earthquake, and he can sleep comfortably on those risks.
Country depositors consist largely of working men, clerks, artisans, small shopkeepers, dressmakers, women of slender means, and so on, together with the banks’ current-account customers. The huge aggregate of deposits is made up principally of small sums, so it is easy to keep down the rate, because the great majority are ignorant of the condition of the money-market, and hardly seem to be aware that the Post Office gives 2½ per cent. upon small sums left with it. The companies trade upon the ignorance of their depositors; and though a few of the better-informed customers withdraw their savings when the rate is extremely low, experience has taught the banks that the great bulk of them simply grumble and take what is offered.
Seeing that the deposits are spread over so great an area, and among men and women who have not sufficient business knowledge to invest their savings advantageously, the banks have been able to keep down rates without reducing their own resources; and the few who do withdraw their savings when the deposit rate is at 1½ per cent. are practically of small account when contrasted with the alternative policy the companies would have to adopt in order to retain them, for it obviously pays better to lose a few receipts than to raise the rate to 2 for the whole of the deposits. For instance, a bank would rather lose £100,000 by withdrawals when the rate is at 1½ than pay 2 per cent. on £5,000,000 for the purpose of preventing the drain, £25,000 being too large a premium to sacrifice for the purpose of retaining its connexion intact, when, perhaps, money is being employed in the London shortloan market at 1½ per cent. and under.
Again, very many of the country depositors look upon the deposit-receipt as an investment, and the banks, quite naturally, do not wish to inform them that even Consols are a more profitable one. Not so very many years ago the country minimum deposit rate was 2, and it was not without certain misgivings that it was reduced to 1½; but, as we have seen, the experiment proved safe, though the banks, given another long period of a 2 per cent. Bank rate, will hardly care to risk 1 per cent. in the provinces, as it seems pretty certain that, were the minimum further reduced, disgusted depositors would invest their savings either in the Post Office or the gilt-edged class of securities. Having once turned this stream of deposits into another channel, it is improbable that a higher rate would tempt them back again; and as the depositor is essential to the modern banking system, the provincial banks will think many times before they risk a rate below 1½, even when cheap capital is again reducing their dividends right and left.
A customer, before leaving his money with a banker, will be careful to inquire what rate he is to receive, and if the rate be not written upon the receipt, then he might pencil the answer he gets upon the back of the document. If there be three good banks in his town, and he has, say, £200 to deposit, there can be no harm in his going to all, and asking the highest rate each is allowing. John Jones, we will assume, holds a deposit-receipt for £200 dated 10th June and he takes it to the bank on 9th December following in order to draw the interest at the rate of 2 per cent. per annum. Between 10th June (excluding the first day) to 9th December (inclusive) there are 182 days, so the banker owes him 2 per cent. per annum on £200 for 182 days. Hence the following sum:—
| 200 × 2 × 182 | = £1 19s. 10d. |
| 100 × 365 |