Federal banking agencies introduced four proposals yesterday that would allow small savers to cash in on higher interest rates.
The agencies acted under intense pressure from consumer groups, which protested the inability of small savers to obtain yields comparable to those of the $10,000 money market certificates (now 9.4 percent).
The proposals are for:
A five-year certificate of deposit with a maximum rate based on, but less than, the rate on U.S. Treasury securities of the same maturity Savings and loan associations would pay one percent less than the Treasury rate; banks, 1 1/4 percent less. Were it in effect now , the ceilings would be 8.2 percent and 7.95 percent . Ceilings for new CDs would change monthly.
A rising-rate certificate on which interest rates would increase the longer it is held. During the first year,S&Ls would pay 6 1/4 percent;banks, 6 percent. In the following 18 months, the rate would rise 1/2 percent and so on. After the fifth year, banks could pay 8 percent and S&Ls 8 1/4 percent up to a maximum of eight years.
A bonus savings account that would pay an extra one-half percent interest on the maximum balance held for more than one year.
A certificate of up to four years with no minimum-deposit requirement. The minimum for other certificates would be $500. This would not apply to the $10,000 six-month money market certificate, however.
After the money market certificate was created in June of last year, the Gray Panthers, an organization of elderly activists, filed a class action against federal financial regulators, charging they had abused discretion by offering the certificates only to the rich who could afford them. They demanded equal interest and a $500 minimum.while sympathetic to the plight of many elderly persons on fixed incomes, the Carter administration nevertheless was reluctant to raise rates, a step the industry called inflationary. It also feared for the financial health of thrift institutions. The Panthers calculate small savers are foregoing $17 billion a year by receiving low interest rates, often the minimum 5 percent.
Reaction to yesterday's proposals varied from mild disappointment to restrained enthusiasm.
Rep. Benjamin Rosenthal (D.-N.Y.), WHOSE SUBCOMMITTEE HELD HEARINGS LAST MONTH ON THE PLIGHT OF SMALL SAVERS, CALLED THE PROPOSALS "AN IMPORTANT FIRST STEP." BUT HE WARNED THAT "ANYTHING LESS THAN ALL FOUR PROPOSALS MAY NOT BE WORTH MUCH."
ON THE OTHER HAND, KENNETH THYGERSON OF THE U.S. League of Savings Associations urged a go-slow approach. Instead of approving all four proposals at once, he said the agencies should do so sequentially, carefully assessing the economic and financial consequences at each step.
If the proposals were presented as a take-it-or-leave-it package, "a number (of S&Ls) would just as soon leave it if they had their druthers," Thygerson added.
A cautionary note was sounded by Federal Home Loan Bank Board Chairman Robert McKinney, who is known to have differed sharply with the other regulators during the negotiations,
He said, "I am also concerned for the 'other' consumer, the home buyer. As we attempt to give relief to the small saver there will certainly be an effect on the borrower." He warned that higher interest rates on mortgages would result if S&Ls were to continue to pay increasing rates to savers.
Comments on individual proposals or in combination will be received until May 4 by the Federal Reserve, the Federal Home Loan Bank Board, the Federal Deposit Insurance Corp. and the National Credit Union Administration. The regulators emphasized they were open-minded to suggestions concerning maturity, rate, penalty and other specific terms.