New high-yield investment account gains US approval

Beginning Sept. 1, banks and thrifts will be allowed to offer yet another new product designed to stem the outflow of depositors' dollars.

Although it has some advantages of its own, such as federal insurance, the new short-term account won't quite match some of the most attractive features of high-flying money market funds. But a more attractive depository instrument, which would cost more to offer, will likely have to wait until Congress acts to give thrifts new asset powers.

At a meeting Tuesday, the Depository Institutions Deregulation Committee (DIDC) approved a high-yielding short-term account, with a 7- to 31-day maturity , which would require a $20,000 minimum balance. At first, savings-and-loans will be able to offer the account with an interest rate equal to the 91-day Treasury bill yield. Banks will be limited to the 91-day T-bill rate, minus 0.25 percent.

All interest rate limits on the account, however, will disappear next May 1.

Depositors will not be able to withdraw money from the account by writing checks to third parties, and will not be allowed to accept package deals by which the depository institution lent any money needed to meet the minimum balance.

With its interest rate ceiling, relatively high minimum balance, and lack of a check-writing feature, the new account is in some respects not as attractive as many money market funds. But most members of the DIDC (composed of Treasury Secretary Donald Regan, Federal Reserve Board chairman Paul Volcker, and other federal financial regulators) felt that anything more dxtreme would cause more problems for thrifts.

A lower minimum balance, for instance, could cause extensive internal shifting of deposits, with customers taking money out of low-yielding passbook savings and putting it into the new, higher-paying short-term account. Such shifting sharply increases a depository institution's costs. Passbook savings still account for 18.9 percent of thrift assets. The DIDC staff estimated before the meeting that any new account must have a minimum balance of at least $10,000 , or else thrifts could be battered by extensive shifting.

Chairman Volcker, who voted for the instrument, said of the minimum balance: ''We ought to be working that down over time.''

Treasury Secretary Regan, chairman of the deregulation committee and the person who proposed the new account, said the balance should be lowered only if Congress moved to give thrifts new asset powers, such as the ability to sell securities.

''The secretary's linkage was explicit,'' Deputy Treasury Secretary R. Tim McNamar said after the meeting. ''It was a signal Congress has perhaps been awaiting.''

The thrift industry was pleased by the day's events, but commercial banks were not so happy. The American Bankers Association had asked the DIDC for a SuperNOW account, with check-writing, no interest rate ceiling, and minimum balance no higher than $5,000.

''We've been frustrated by virtually all DIDC meetings,'' says Fritz Elmendorf, an ABA spokesman.

In at least one state, South Dakota, some bankers have chosen civil disobedience over waiting for the committee to act again. The South Dakota Banking Commission has approved a $5,000 minimum SuperNOW account, which state banks will be able to offer - against federal law - in about 20 days.

''Come on, Feds, and let's have at it,'' says J. I. Milton Schwartz, executive manager of the South Dakota Bankers Association.