End of interest-rate curbs will spawn new beckonings by banks

The next, but certainly not the last, round of bank hype is about to get under way. New Year's Day will mark the end of most regulations governing interest rates on deposits. Banks will be free to pay whatever interest rate they want for money market deposit accounts, Super NOW accounts, and certificates of deposit of seven to 31 days. And on March 31, the ceilings on passbook savings accounts will be removed as well.

Does this mean banks will start paying high interest rates on all their deposit accounts? And does it mean customers can negotiate with banks for better interest rates on long-term deposits?

It probably does not. But it almost certainly means banks are going to be buying lots of ad space to talk about their new accounts, with fancy new names.

Actually, there may be fewer accounts. And there probably won't be many changes in existing minimum-deposit requirements.

The most immediate change, says Robert Heady, will probably be a combining of the Super NOW and NOW accounts into one NOW checking account. Mr. Heady is publisher of 100 Highest Yields and Bank Rate Monitor, two North Palm Beach, Fla., newsletters that follow banking trends.

``Checking is a pivotal account for banks and thrifts,'' he says. This is usually the first account people open with a bank. If the service is good, it may be followed by savings accounts and, most important to the bank, loans and credit cards. ``Banks have hyped all their new accounts in the past, so I don't see why it won't happen again.''

So there could be a lot of new names for one or two new accounts in the next few weeks. Many of then, Heady says, will be ``tiered,'' that is, they will pay higher interest for greater balances. One bank, for example, has already announced an account with a 7 percent interest rate on balances above $1,000.

Other banks are expected to pay 5.25 or 5.5 percent on balances below a certain minimum and a moving market rate above that. The overall rate on these accounts would usually be less than on an account where the entire balance earned the market rate, even if that market rate were lower than the higher levels of tiered rates.

Those who open accounts with less money, however, can expect to pay higher fees. The monthly fees and charges for writing each check are also likely to increase.

You can also expect increases in fees for ``returned,'' or ``bounced,'' checks. Another newsletter writer, James Jorgensen of Cupertino, Calif., claims it costs banks only 37 cents to $1 to process a bounced check. If true, that would mean a tidy profit from the $10 to $20 customers are now charged for each rubber check, even tidier if the fee goes up.

The new year will be a time, then, for more rate shopping. If you're the sort who keeps a checking-account balance fairly low and uses it only for expenses between paychecks, look for the lowest fees you can find and don't worry about interest rates.

If you keep larger balances in the checking account, look for one with a higher rate for all balances, not a tiered rate. And if you're keeping more money in the account, you may be able to find lower fees, too. Speaking of fees and charges . . .

The envelope that dropped through our mail slot the other day sure looked like the first step to a great deal on a Visa card. ``No Annual Fees,'' the front of the envelope said, along with ``1% Rebate on Purchases'' and ``Slash Monthly Payments.''

Tearing the envelope apart in the hunt for more information was successful; there was more information -- but a lot more questions, too. The letter, promoting the First Select Visa card, was sent by First Deposit National Bank in Tilton, N.H., owned by First Deposit Corporation in San Francisco.

While this is just one of hundreds of banks sending out material for Visas and MasterCards, it's an example of the kind of extra questions people need to ask before they sign up for a new card. For instance, some of these letters, including this one, don't tell you the interest rate until you send in the application and receive your card.

In this case, you are told that when you sign up, you not only get the card, you also get a check for at least $1,000 (you can have up to $3,000). But you aren't told the interest rate: 21.9 percent.

If you decide to get the card, you have to take the $1,000, but it won't be charged to your account for seven days, a bank spokeswoman says. But if you don't need the money, that may not be enough time to get the $1,000 check mailed to you, have it clear your bank, and send another $1,000 back to California without incurring some interest. Thus, even though there's no annual fee, the card will still cost you money. And at 21.9 percent, possibly one of the highest bank card rates in the country, you can

get a cheaper loan almost anywhere else.

Another prominent feature in the letter is the low monthly payments. This is simply a result of the fact that the bank is permitting a minimum monthly payment of 2 percent. That will make the payments smaller, but it also delays the day the balance is paid off, which keeps the customer in debt and the bank counting its interest income that much longer.

If you have a question that would make a good subject for this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given. References to investments are not an endorsement or recommendation by this newspaper.

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