Banking: Instant Interest

With instant coffee and instant soup going down so well, the U.S.’s go-getting banks have been experimenting with a new gimmick: instant interest. Last week, California’s banks became the first to introduce instant interest on a state-wide basis. Following the lead of individual banks in New York and other cities around the U.S., the Bank of America and other California branch banking giants announced that they too would begin to compute interest on savings accounts from the day of each deposit instead of only at specific times.

Reason for the switch is the competition of California savings and loan associations, which pay depositors 4½% interest while commercial banks are prohibited by federal law from paying more than 3%. In the past, California banks traditionally gave themselves the benefit of the doubt on interest payments. They compounded interest only twice a year, paid on the minimum balance during each pay period, and reckoned by a 360-day year, which gave them free use of the money for five days annually. Along with the new interest arrangements, to be computed quarterly, the banks will give depositors an additional bonus: money deposited during the first ten days of the month will be figured in the interest charts for the entire month; money withdrawn during the last three days will not affect the monthly rate.