If, in a few years, you are looking for a place to stash a few dollars, you may find that the banks and saving institutions in your area are using something new to attract your money -- more-competitive interest rates.
With the enactment by Congress of a landmark financial-reform act, US financial institutions will be gradually freed from today's legal interest-rate ceiling and be able to compete with one another by offering higher rates and eventually market-level rates.
The act was signed Monday by President Carter.
Savers will be able to earn more interest on passbook accounts and have access to broad range of new banking services ranging from nationwide NOW accounts (where interest is paid on checking accounts, a service currently available only in New England, New York, and New Jersey) to credit cards authorized by thrift institutions. But at the same time, costs are expected to rise for many instituttions -- particularly smaller banks.
There is also some questions as to whether the legislation -- the Depository Institutions and Monetary Control Act of 1980 -- may be "too little, too late."
"In a way, the whole issue [of raising interest ceilings] may be academic now ," argues Philip M. Comerford, president of State National Bank, Rockville, Md.
The pell-mell rise in assets of money market mutual funds during the last five years, now over $60 billion, indicated that "American savers are very interest-rate-sensitive," says Mr. Comerford. Very few people, he says, "will be content with some [bank] paying 5.5 percent interest if you can get 14 or 15 percent" in a mutual fund.
Under terms of the new legislation -- praised by the US League of Savings Associations as the "most significant" savings legislation enacted since World War II -- interest ceilings on savings accounts will be gradually phased out over a six-year period. Federal bank regulators could speed up that timetable, however,
Currently, thrift institutions, S&Ls, and mutual savings banks can pay up to one-quarter percent more on passbook accounts than can commercial banks.
Under the legislation the rate ceiling, known as Regulation Q, will rise by one-quarter point during the next 18 months. That means that commercial banks could pay 5.5 percent during that period, instead of 5.25 percent.
Most major commercial banks, particularly the large, bit city "national" banks, have been earger to have the rate ceiling lifted for a number of years now.
Many smaller banks, however, have portfolios that consist primarily of long-term loans secured by real estate. The loan rates tend to be relatively low in relation to the soaring prime rate, the interest rate that banks charge their best business customers. This in turn means an unsatisfactory spread between interest paid out by a bank and interest earned by a bank on its loans.
Analysts here not that the stocks for a number of major banks, including Chase Manhattan, Morgan Guaranty, and Riggs National, are now selling relatively low, compared with their annual earnings.In part, this reflects the current interest rate squeeze for banks.
Still, according to American Bankers Association analysts here, most major banks will welcome -- and easily absorb -- the new higher interest payouts if that helps to hold their deposits from fleeing to mutual funds. A financial crunch would come only if federal regulators quickly sped up the decontrol timetable, it is felt here. Bankers, for their part, are pleased that the act now raises federal insurance backing on accounts from $40,000 to $100,000. The move is expected to help draw in large certificate-of-deposit accounts.
S&Ls will be able to offer credit cards and various types of second-line property loans and consumer loans up to one-fifth of their total assets -- all services hitherto mainly associated with commercial banks.