Want to win a portable radio, a few thousand dollars in cash, a two week trip to Israel?
All you have to do is get a friend to deposit between $3,000 and $100,000 in a New York savings bank.
Flip through the pages of any newspaper in the Big Apple and count the Big Bonanzas. If your "friend" has an extra $100,000 to leave on deposit for three years at East New York Savings Bank, you can take your choice of $3,000 in cash, a video casette recorder or an all-expenses-paid vacation for two in the Middle East or Italy. Your "friend" earns 10.11 percent effective annual interest on the deposit.
You aren't that friendly? Well, a mere $10,000 deposit for one year at the Dime Savings Bank will get you $100 in cash, a Kodak instant camera, a La Machine food processor or some other marvelous merchandise.
Republic National Bank gets down to the nodding acquaintance category with a Singer Sewing machine offered when $3,500 is left on deposit for five years at 9 1/2 percent, or a Kabuki 12-speed bicycle for $1,000 left for seven years at 6 percent.
Some banking regulators in Washington decided last May this Great Giveaway really had to go. After all, when the last time the U.S. government gave away a food processor with every Treasury bill purchased?
The regulators -- known collectively as the Depository Institutions Deregulation Committee or DIDC -- deemed there was abuse, especially in the payment of cash premiums or finder's fees. Bank rules specify that the "friend" must be over 18 and not a member of one's household.
In practice, it is universally acknowledged that the finder's fee almost always is turned over to the person depositing the money and therefore constitutes at least 1 1/2 percentage points more return on his or her funds than the law allows.
As if getting a high interest rate plus a gift or cash weren't enough, Dime Savings Bank advertises it will lend you up to 95 percent of your deposit at just 2 percent points over the interest paid just in case you find a better use for the money before the certificate matures. This is aimed at competing with money market funds which allow withdrawals at any time, and at skirting the penality imposed for premature withdrawals from money market certificates.
The premium race began this spring when the state of New York relaxed restrictions on the relative value of the gifts banks could offer to attract new customers. The action was aimed at aiding savings banks, which were especially hard-hit by competition from money market mutual funds. Banks and thrifts in other states also offer premiums, but the practice elsewhere has not been running as rampant as in New York City.
At stake is over $100 billion in deposits. Statistics compiled by the Savings Bank Association of New York State show the power of premiums in determining market share.
During the first two weeks of June, for example, East River Savings Bank had a savings outflow of 0.23 percent. On June 5 East River announced it would be the first to pay a 1 1/2 percent finder's fee. As a result, said marketing director Richard Cook, deposits climbed 4.82 percent during the first two weeks in July at a time when only three of the other top 10 savings banks took in more deposits than they paid out.
Another big gainer was the Greater New York Savings Bank, where deposits rose from a June gain of 0.03 percent, or virtually stagnant, to 2.34 percent a month later. Greater New York was the first to pay a 1 1/2 percent finder's fee on one-year money. Executive Vice President Gerard Keegan said the bank took in $13 million in one day after the campaign was announced.
On the other hand, deposits at Manhattan Savings Bank declined from an inflow of 0.27 percent in June to an outflow of 0.69 in July Franklin Savings Bank's outflow deepened from 0.17 percent of 1.01 percent a month later. Neither one offers premiums.
Franklin President Jack Morgan acknowledged the effect of the gift horse race. "We're not philosophically opposed to [premiums]. We were just unwilling to pay that high an effective rate for funds. We couldn't make a decent spread [profit from investing the funds bought from customers]. When pots and pans become profitable, we'll do it," Morgan said.
Yet Savings Bank Association figures reveal that all this gift-giving is just churning funds, or getting depositors to switch from one bank to another without adding any new money. In the first half of 1980, savings banks in Manhattan and Brooklyn had a net outflow of 4.63 percent, or $3.5 billion. i
Nearly all of the racers agree it is time to call a halt. But no one seems willing to be the first to stop.
And, of course, the makers of the premium gifts, who stand to lose about $300 million a year, have been outspoken opponents of the proposed ban.
Congressional hearings on the premium issue were held this week in the Senate and are scheduled for later this month in the House. The DIDC is due to issue its final regulations Sept. 9, although its actions would not take effect until Jan. 1, 1981.