Starting today, Washington area consumers willing to keep a minimum of $2,500 in their checking accounts will be able to earn 7 to 11 percent interest on their money as the result of the latest step in the deregulation of financial institutions.
The interest rates, service fees, penalties and other provisions imposed by banks and savings associations on the new accounts vary widely, a telephone survey shows. In most cases, the new Super NOW (for Negotiable Order of Withdrawal) accounts will offer advantages only for those who keep a large balance in their checking accounts or write few checks.
Super NOW accounts have many of the same characteristics as the Money Market Deposit Account introduced last month. The principal difference is that customers can write an unlimited number of checks on the Super NOW account, whereas the money market account is limited to six transactions a month.
Federal regulations set no ceiling on the interest that can be paid on the accounts, but require that the rate be reduced to 5.25 percent if the balance falls below $2,500.
A telephone survey of banks and savings institutions in the District, Maryland and Virginia reveals a considerable amount of confusion and hesitation. Of 41 institutions questioned, only 25 were willing or able to explain the terms they plan to offer. The others said they were undecided, would offer the account later, or had not yet set their rates.
The local financial institutions surveyed will pay an average of 8.9 percent interest, compared with the 10.6 percent average they are paying on money market accounts.
Rates start at 7 percent and range up to 11 percent offered by state chartered savings and loans in Maryland, which are insured by a private company, Maryland Savings Share Insurance Corp. They can pay higher rates on the accounts, which they have been offering for some time, because they do not have the same reserve requirements as federally insured institutions.
The average rate offered by Virginia institutions surveyed yesterday was a fraction of a percentage point higher than what those in Maryland and the District said they plan to pay.
Financial executives stress that the new accounts are not for everyone. John Hanson Savings and Loan calculates that its customers need to keep at least $3,000 in a Super NOW account to break even.
Three local institutions said they pegged their Super NOW interest rates to the interest paid on three month Treasury bills; all others said the rate was a management decision based on market conditions.
Market Facts, a Chicago-based research company, estimates that Super NOW accounts will initially draw approximately $9 billion in deposits, most of which will come from existing savings and checking accounts at the issuing institution. The company predicts the Super NOW will attract $22 billion over the long haul.
Only two local institutions have set a minimum balance higher than the $2,500 required by federal regulations, but two thirds of those surveyed charge fees and penalties beyond the mandatory reduction in the interest rate to 5.25 percent if the account falls below $2,500. The highest service charge reported for an account falling below the $2,500 minimum was $25 at McLean Bank.
Three institutions surveyed will pay market interest rates only on the balance above $2,500 and will pay the 5.25 percent rate on the remainder of the account. They are Washington Federal S&L, First Federal S&L of Arlington and Continental Federal S&L. Union Trust pays no interest on any day the balance is under $1,000.
Although regulations permit unlimited checking, at least two Maryland banks have chosen to attach fees to "excessive" transactions. First National Bank will charge $5 a month service charge for writing more than 35 checks. Union Trust of Baltimore will charge 30 cents per check or ATM withdrawal and 10 cents per deposit plus $5 maintenance if the account falls below $2,500. It also has a 20 check and 20 deposit limit.
John Hanson Savings and Loan has a $2,500 minimum but charges monthly maintenance fees on all balances below $15,000. First American Bank of Maryland has the same minimum but charges a $5 a month fee on balances between $2,500 and $5,000.
Not all penalties and fees work the same way. Some banks impose penalties if the balance on any given day drops below the minimum; other institutions charge penalties only when the average monthly balance is less than required. A significant number of institutions surveyed have adopted the daily requirement, which can substantially reduce the yield.