The savings passbook, for generations a symbol of thrift and stability, has fallen victim to a revolution in American savings habits.
Hard-pressed by inflation, thousands of families have abondoned the traditional savings account for an array of alternative investments -- from money-market funds to certificates of deposit -- that offer far greater returns on their money.
In the last decade, passbook savings have plummeted from more than a half to a little more than one-fourth of savings deposits in the United States. Since 1978, when six-month certificates were introduced, the amount of money in savings accounts nationwide has dropped almost $80 billion.
The atmosphere has changed average savers into speculators, jolted the institutions that counted on their low-interest deposits and given impetus to sweeping federal policy changes.
It also has created sharp class distinctions among savers, leaving the passbook largely to the working poor, the elderly and the small savers who put away only a little cash each week and need to keep it in reach in case of emergencies.
In short, the old passbook has gone the way of the gas guzzler, the corner grocery store and any number of other time-honored American institutions: It doesn't make much economic sense any more.
In a sense, the passbook now is symbolic of a more stable era, when it was somehow comforting to see interest payments typed out quarterly by bank tellers in the durable little booklets, and it was not worth the time for the average saver to watch market rates and juggle investments. Many banks and savings and loans have done away altogether with the passbook, substituting less labor-intensive computerized statements. Nevertheless, the accounts still usually are called "passbook accounts."
In recent years, while regulatory ceilings held passbook interest rates to 5-1/2 percent at federally chartered savings and loans and 5-1/4 percent at federal commercial banks, the rates paid on a host of other accounts were rocketing:
Money market funds, established on a large scale in 1974, peaked in April at 16.29 percent. (The recession has driven the rate down to 8.89 percent now). They had lured $77.3 billion nationally as of last week, compared to $375.7 billion in passbook and regular savings accounts at banks, thrifts and credit union.
Six-month money market certificates, offered since June 1978 at banks and thrifts, peaked at 15.1 percent in late March and have now fallen to 8.15 percent at commercial banks and 8.4 percent at thrifts. The nationwide balance was $43 billion.
30-month certificates, offered since January, peaked at 10.75 percent in April, and stood last week at 8:55 percent. The nationwide balance was $43 billion.
For small savers, the new opportunities generally are out of reach: High-yield certificates tie up money for months at a time; money market funds, while they can be withdrawn on a day's notice, call for minimum deposits ranging from $300 to as high as $5,000 to open an account.
"I see those ads in the paper [promoting higher-yield certificates or money market funds], but we have to have our money where we can draw on it," said Bessie Johnson, a northeast Washington mother of four. "What if something came up?"
She and her husband, Willie, and their children look to his earnings as a truck driver to cover expenses and emergencies, she explained. They keep from $100 to $500 in their passbook account at Jefferson Federal Savings and Loan Association, she said. "This is the way I have always saved. It would be hard to change," she added.
The statistics show that plenty of other people are changing -- rapidly. And even now that the recession has driven interest rates on the money funds and certificates to within a few percentage points of the passbook ceiling, savers are not returning to passbook accounts in anything near the numbers that they left, statistics show.
The peak-level inflation of the past spring apparently taught many of them to shop around, to squeeze the last percentage point out of their shrinking dollars, according to some economists.
"Now, we see a $5,000 or a $10,000 deposit in a passbook here and there, but it's not going to stay there.We call it hot money," said Howard Millner, senior vice president of National Permanent Federal Savings and Loan. "They're just keeping it there like a parking lot until they can find a better investment." Millner said savers who used to keep $5,000 for emergencies in their passbooks have now pared that down to a few hundred, with the rest in money markets and certificates.
In Maryland, where state-chartered savings and loans, free of the federal ceilings, now pay up to 7 percent of passbooks, the return to savings accounts has been heavier.
For the most part, said Dennis Jacobe, director of research for a national savings and loan trade group, "It's a sign of the uncertain economic times. There's an awful lot of monied people out there who are puzzled about what to do with their money. It's not very healthy at all."
The passbook is a prime "parking lot" because, unlike the certificates of deposit, it allows savers to withdraw money at any time with impunity. Money market funds, which also offer the one-day access, are not federally insured. (However, brokers for the funds point out they are invested in treasury bills and low-risk securities and are almost as safe as a federally insured account.)
The latest data on savings accounts at Maryland National Bank, the largest in the area, dramatizes the new class distinctions between savers.
At the bank's branches in Montgomery County, the bastion of wealthy professionals, passbooks account for only 4.5 percent of all savings accounts. In Prince George's, the traditionally blue-collar, suburban turf, passbooks account for 6 percent. In Baltimore, a heavily working class city with high concentrations of poverty, passbooks hold 26 percent ($82 million) of savings account deposits.
Maryland National pays only 4-1/2 percent interest for passbook accounts. (The bank pays the ceiling rate -- 5-1/4 percent -- to depositors who are willing to use computerized statements instead of passbooks, since the "statement savings" accounts require less labor.)
As a result, the Baltimore passbook customers will get $615,390 less in interest at the end of the year than if they had put the same $82 million in a "statement savings" account.
"Certain people have come to trust the passbook and they want it no matter what," said a bank spokesman. "These are mostly elderly people and the least educated and least enlightened segment, the people most set in their ways."
Sprinkled among passbook savers, however, are many people who could afford the higher-paying investments, but simply have not made the move. Many of them are in their late 20s and early 30s; they have begun to accumulate money, but say they have not made the transition to seeing themselves as investors. As a rule, they tend to make apologies when asked why they still save so much in a passbook.
"I feel so stupid, but I still have my money in a passbook. I'm lazy, I'm negligent, I guess. My father says that my bank must love me; they're making a killing off of me," said a 27-year-old lawyer who said she was too embarrassed to let her name be used. She said she has $4,400 in a passbook account.
Such people constantly are being prodded by brokers to make the move to money market funds. For example, a small advertisement now running in the paper peeks out of the news columns as if whispering, "Pssst!" and asks: "Do you still have a passbook account?" Those who answer the ad are told that if they have $2,000 or so in a passbook account, they could be earning more, almost as safely, in money markets.
Despite the earnest marketing efforts of such brokerage firms and promotions of the certificates by banks and thrift institutions, there are plenty of passbook devotees who refuse to budge.Prominent among them are elderly men and women, who grew up with the passbook and now say they do not want to part with it.
The passbook also has its die-hard devotees, such as the 74-year-old Reston woman who said she still keeps $25,000 in savings accounts at the United Virginia Bank.
"I know they're making money off me," she said during lunch at a Herndon senior citizens center. "What am I going to do? Put it under my mattress?" She said she dislikes certificates because, if she dies, her beneficiaries will have to wait until they mature to collect the money. And money market funds? "I don't like to maneuver," she answered.
Many of her companions at the Fairfax County center said, however, that they have switched to certificates, often at the urging of their children. They talked with facility about the advantages and disadvantages of the various accounts and funds, belying the traditional stereotype of the elderly as a group insulated from such trends.
Likewise, "country banks, normally bulwarks against change, are experiencing many of the same fluctuations as their bigger-city counterparts.
"Everybody's getting sophisticated now," said J. O. Pippin, president of Centerville National Bank on the Eastern Shore of Maryland. "We all get the Wall Street Journal. We read the papers. We know what's going on."
Executives of banks, thrift institutions and credit unions look with considerable unease on these shifts.
In the past, the large pool of money kept in passbooks at low interest rates subsidized other bank and savings and loan operations. It meant that consumers could obtain cheap mortgages from savings and loans while still leaving the institutions with a healthy profit margin.Saddled with long-term, low-interest loans, many thrifts and credit unions came close to collapse last spring when money poured from passbooks into savings plans that paid more.
Many savings institutions are recouping their losses in part by charging customers for services that used to be free, such as checking accounts.
The positive side of all this, consumer groups say, is that small savers no longer subsidize borrowers as much; people get what they pay for.
The savings industry, which does not speak with one voice, generally has argued in return that the shifts favored the consumer while burdening the industry.
Such debates will be dated within the next few years, because a sweeping reform bill passed by Congress last spring is expected to reshape the industry. In sum, it sets the stage for a dramatic evolution in which banks, savings and loans and credit unions should begin to look more and more alike, and the distinctions between the accounts they offer also should blur.
The bill provides for a gradual lifting of passbook interest rate ceilings -- beginning Jan. 1 and lasting for six years -- ultimately allowing them to float with the market. Savings and loans were authorized to offer checking accounts and short-term consumer loans to attract new deposits and income. As of Jan. 1, thrifts and banks can offer checking accounts that pay interest, already available in New England.
In the long run, the passbook probably will survive, a Treasury Department representative said, not just for the small saver, but also for the larger savers who feel more comfortable keeping "rainy day" money close at hand. Basically, the future profile of passbook savers already is taking shape today.
They probably will look something like Neille and John Russell of Northern Virginia. They have a combined income of about $50,000. They keep savings money in federal credit unions, where it earns more than in a bank passbook, and buy certificates when enough cash accumulates.
The old bank passbook, for them, is for emergencies. They have about $200 in it, Neille Russell said.
Like many older Americans, she calls herself a firm believer in the passbook, but she refers to it with considerably less reverence.
"We call it [the passbook account] our 3-C account," she said. "My husband thought it up. It stands for cash, cars and crap."