Conditions for the Attractiveness of Savings Accounts
An individual of the species “**** oeconomicus”, blessed, we presume, with the facility of “rational expectations”, can be imagined in the situation of needing to decide on whether to put money into a “savings account” or perhaps to follow some other strategy with his money, over a period of time. It is not widely advertised by American financial or banking institutions, but the rate of interest that they would pay on deposit or “money market” accounts might be lower than the rational expectation for the rate of inflation relevant for the national currency.
So should the “economic person” rationally decide to “save”, using such a channel for the depositing of his money, or, perhaps, should that person decide to go early into a housing purchase for which he/she might need to borrow money, perhaps under the conditions applicable to “sub-prime borrowers”?
It is obviously not simply “thrifty”, but under conditions of uncertainty about the continuing value of the national currency it could, indeed, be the more rational choice to go earlier into the house purchase rather than to wait to develop a stronger basis, by saving money over a time period, before reaching the time to make a “down payment” on a mortgage financed house purchase.
But under the conditions generally obtaining, for the US dollar and for the British pound, at the time period, say, of 1870 through 1910, there were modest interest rates available for savers (or savings account depositors of whatever motivation) in Savings and Loan Associations or in other institutions offering comparable deposit accounts AND this in the context of the general absence of inflation (because of the dollar and the pound then both standing in a standardized fixed price relationship to the “troy ounce” of gold).
But of course we can note that in those days, although depositors could earn a genuine increment of interest on their savings deposits, there was generally no provision for an insurance coverage for the possibility, like recently with “Icesave”, that the calculations of the institution might not be perfectly far-seeing. It was, perhaps, a time when one needed to know something, effectively, about both the moral character and the financial wisdom of one’s banker.
It seems that there have been times, historically, when there would be “good bankers”, like maybe a Rothschild, or a Morgan, or a Giannini, and recently or now we seem, comparatively, to have been in the era of bank executives who win, as players, if their employer does not fail during their time as employees, and lose, as players, if the bank fails and is absorbed through something like the American FDIC, but then do not really LOSE BIG (with need to pay damages) by having simply the status of employees of a corporation. (In the USA a bank that is not a corporation is very rare; an example of that is Brown Brothers Harriman and Company.)
