In a story on high interest rates for small savers in yesterday's editions the net spread realized by banks was incorrectly given. The correct figure is 27.5 percent.
A plan offering small savers in the Washington area virtually the same high interest rates paid on larger accounts was initiated yesterday by State National Bank. It is one of a handful in the country to do so.
The Rockville-based bank is paying 9 percent interest on $1,000 minimum accounts held for one year. This yield approximates the 9.2 percent now paid on six-month money market certificates with a $10,000 minimum. Under current regulations the maximum yield banks are allowed to pay on a $1,000 one-year deposit is 6 percent.
As the result of a small savers rebellion, perpetrated by the Gray Panthers, federal banking agenies recently introduced proposals to upgrade interest rates on small accounts. But the best yield offered under the rising rate plan is only 6.25 pecent during the first year.
Federal banking regulators and indusrty spokesman objected to the proposals on the grounds they would place too heavy a bruden on financial institutions. However, the senior citizens activist organization refused to accept anything less than equality for small savers and indicated it would try to find cooperative banks willing to pay comparable rates.
In late March, Security National Bank in California began forming pools with a minimum contribution of $1,000 to profit from money market rates. In its second week the bank took in $1 million. A week ago the First Pennsylvania Bank in Philadelphia announced a 9 percent yield on one-year, $1,000 accounts. Maggie Kuhn, founder of the Gray Panthers, with headquaters in Philadelphia, purchased the first certificate.
Hugh Stedman, a First Pennsylvania spokesman, said the bank was prompted by financial as well as social reasons. "It's a profitable opeation," he said. "We hope we can show (skeptical banks) that it can be done." Another institution, Amalgamated Bank in New York, has been successfully paying 8.5 percent intersst on $500 one-year minimum accounts since last December.
The economics of First Pennsylvania's and State Nationa Bank's plans are similar. First Pennsylvania receives an average return of 7.5 percent on thr Treasury securities in its portfolio which back its 9 percent consumer certificates. The bank then lends funds derived from the certificates at 11.75 percent, so the net spread is 1.25 percent.
The certificates are called rtail repurchase agreements. They are not cosidered deposits by regulators-and therfore not subject ot Regualtion Q ceilings on deposits-but they are not federally insured either. They are backed first by the banks-First Pennsylvania has assets of $9.6 billion and State National $100 million-and then by the securities.