COBA, Winter 1983 Page: 5 of 20
19 p. : ill.View a full description of this periodical.
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"Competition will tend to raise the cost
of funds for all banks and savings and
loans as accounts shift from savings
accounts and NOW accounts, which
offer lower interest rates, to these
higher earning Super NOW accounts
Institutions first began offering the money market deposit
account, an account that had quite a few restrictions on it as
to how many checks could be written per month and so
forth. Then the Depository Institutions Deregulation Com-
mittee authorized the "Super NOW" account available from
January 5, 1983. With a $2,500 minimum balance, the depos-
itor can write an unlimited number of checks while receiving
whatever interest rate is mutually agreed upon with the bank
or savings and loan association, There is no limit on the rate
that can be paid the depositor.
Will every Super NOW account pay
different interest rates?
They can. There's no rate ceiling, so individual institutions
may calculate rates differently for their Super NOW
accounts. Some may pay a daily rate and some a monthly
rate. Some may pay a rate equal to the treasury bill rate.
Some may pay a little bit more, some less. The pricing will
vary from one institution to the next. There is no limit.
Are we going to see banks competing with
other banks for those savings dollars?
We're already seeing it.
Is that a potential problem because larger
banks can afford to pay a higher interest rate?
Well, I don't think it's necessarily true that larger banks
can afford to pay more than smaller banks. Competition will
tend to raise the cost of funds for all banks and savings and
loans as accounts shift from savings accounts and NOW
accounts, which offer lower interest rates, to these higher
earning Super NOW accounts. That will probably hurt the
profits of all institutions. Bankers will have to compute what
it's costing them to offer the account, what their rate of
return is on their funds and, therefore, how much they can
afford to pay on the account. If they pay too much, they're
going to lose money.
This development is quite good
for consumers, isn't it?
It's very good for consumers. These accounts are insured
by the Federal Deposit Insurance Corporation up to
$100,000 per account, whereas money market mutual funds
do not carry federal depository insurance.
What effect will these accounts have
on money market mutual funds?
it's going to hurt the money market funds. And these fund
brokers believe so, too. They planned to sue, but didn't, the
Depository Institutions Deregulation Committee to prevent
the Committee from authorizing an account that offered
insurance and higher interest rates. Some of the brokers of
these funds have tried to acquire banks so they can offer
their own insured money market funds, but that hasn't been
too successful so far. Money market funds have already suf-
fered a significant decline in their assets. The last figure I
saw showed them at less than $200 billion in assets rather
than above $230 billion, as they were before the Super NOW
accounts were approved.
I think you'll see an even larger decline in money market
funds in the future, primarily because the local institutions-
banks or savings and loans—have the advantage of local
representatives to solicit the customer and work with him as
problems arise.
With the benefits of the Super NOW, will people
still invest in money market deposit accounts?
Money market deposit accounts are still going to be
attractive for a number of reasons. Although not as accessi-
ble as Super NOWs, the depositor can usually write up to
three checks a month and make three authorized transfers.
Because money market deposit accounts do not have
reserve requirements, 100 per cent of the funds from these
accounts can be invested by the bank, thus earning a higher
rate of interest on the account than for accounts with
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Texas Tech University. College of Business Administration. COBA, Winter 1983, periodical, Winter 1983; Lubbock, Texas. (https://texashistory.unt.edu/ark:/67531/metapth393231/m1/5/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting Texas Tech University Rawls College of Business.