Rep. Fernand St Germain (D-R.I.) yesterday proposed a five-year phase-out of interest rate ceilings on savings accounts. If the bill is passed, banks and savings and loan associations would be able to offer small savers market rates in half the time provided by the Senate's 1990 deadline.

The proposal by the chairman of the House subcommittee on financial institutions came on the first day of hearings on comprehensive and controversial banking legislation dealing with Federal Reserve Board membership and interest-bearing checking accounts as well as interest rate controls.

In the waning hours of the last session, Senate and House conferees decided they could not agree on the total package until each side had held hearings on all its parts. The Senate Banking Committee, which has already approved a 10-year gradual decontrol of interest rates, is scheduled to consider Fed membership early next month.

Yesterday it was the turn of the House panel, which has approved legislation to help the Fed stem declining membership, to discuss interest controls.

St Germain remarked, "While I admire the Senators' ability to peer into the distant future, 1990 is simply too long to await a decent burial for Regulation Q (controls)."

The St Germain version would require financial regulators to raise passbook rates by at least one-half percentage point immediately or within one year of passage.

Savings institutions would be allowed to pay one-quarter percent more interest than banks until 1985. But in the interim, financial regulators would be required to raise savings rates more, provided market rates and economic conditions warrant it.

The accelerated phase-out of Regulation Q drew swift approval from the U.S. League of Savings Associations, although the S&Ls object to the mandatory rise in passbook rates. Jay Janis, chairman of the Federal Home Loan Bank Board, who has supported the 10-year phase-out, asked for time to study the five-year proposal.

Meanwhile yesterday, the Senate Banking subcommittee on financial institutions was hearing testimony on possible restraints on money market mutual funds. In just over one year, these have grown from 500,000 shareholders with $12 billion in assets to 2 million shareholders with $50 billion in assets. Projections are that the fund's assets will rise to $100 billion in one to three years.

The Federal Home Loan Bank Board has calculated that S&Ls have lost $6-7 billion to money market funds since June 1978, or 15 percent of the volume of new money in the funds during that period. It estimates that money market funds may have helped divert $5-6 billion from the mortgage market.