Part 3

Year 3% 4% 6% 1 $103.02 $104.04 $106.09 2 106.14 108.24 112.55 3 109.34 112.62 119.41 4 112.65 117.17 126.68 5 116.05 121.90 134.39 6 119.56 126.82 142.58 7 123.17 131.95 151.26 8 126.90 137.28 160.47 9 130.73 142.83 170.24 10 134.68 148.60 180.61 11 138.75 154.60 191.61 12 142.94 160.84 203.28 13 147.26 167.34 215.66 14 151.72 174.10 228.79 15 156.30 181.14 242.73 16 161.03 188.45 257.51 17 165.89 196.07 273.19 18 170.90 203.99 289.83 19 176.07 212.23 307.48 20 181.39 220.80 326.20 21 186.87 229.72 346.07 22 192.52 239.01 367.15 23 198.34 248.66 389.50 24 204.33 258.71 413.23 25 210.51 269.16 438.39 26 216.87 280.03 465.09 27 223.42 291.35 493.41 28 230.18 303.12 523.46 29 237.13 315.36 555.34 30 244.30 328.10 589.16

$500

Year 3% 4% 6% 1 $515.11 $520.20 $530.45 2 530.68 541.22 562.76 3 546.72 563.08 597.03 4 563.24 585.83 633.39 5 580.27 609.50 671.95 6 597.80 634.12 712.88 7 615.87 659.74 756.30 8 634.48 686.40 802.36 9 653.65 714.13 851.22 10 673.41 742.98 903.06 11 693.76 772.99 958.05 12 714.72 804.22 1,016.40 13 736.32 836.71 1,078.30 14 758.58 870.51 1,143.97 15 781.51 905.68 1,213.63 16 805.13 942.27 1,287.54 17 829.46 980.34 1,365.96 18 854.52 1,019.95 1,449.14 19 880.35 1,061.15 1,537.39 20 906.96 1,104.02 1,631.02 21 934.37 1,148.62 1,730.35 22 962.61 1,195.03 1,835.73 23 991.70 1,243.31 1,947.52 24 1,021.67 1,293.54 2,066.13 25 1,052.54 1,345.80 2,191.96 26 1,084.35 1,400.17 2,325.45 27 1,117.12 1,456.73 2,467.06 28 1,150.88 1,515.59 2,617.31 29 1,185.66 1,576.81 2,776.70 30 1,221.50 1,640.52 2,945.80

VARIOUS TYPES OF SAVINGS BANKS

Not all savings banks are conducted on the same basis. In New York and a few other states the only institutions which are permitted by law to call themselves “savings” banks are the _mutual_ savings banks. There are more than six hundred of these, most of them being in the eastern states. They operate under very strict laws. Only the safest investments are legal for them.

Their funds must be put into such securities as United States bonds, city and state bonds, high grade first mortgages--investments in which there is practically no risk.

There are no stockholders--the depositors really own the bank. They receive the profits in the form of interest on their deposits. The bank is managed by trustees who receive no salaries. The profits are never spectacularly great because the investments must be “gilt-edged,” and such investments do not yield big returns. So the depositors in these banks usually get from four to four and one-half percent on their money.

However, this money is probably in as safe a place as could be found anywhere. There have been no failures of mutual savings banks in recent years.

Other savings banks are not subject to the same legal requirements, and the depositors are not the owners of the banks. Moreover, what you regard as a “savings bank” may be a savings department of a regular commercial bank. Many of these banks are as solid as the Rock of Gibraltar. Some of them may not be. It depends on the integrity and ability of the management.

It is best to make inquiries about a bank before you deposit in it. Find out something about the men who control it. Read its reports and financial statements. Write to the state bank examiner, and so long as your money is in a bank, try to keep informed as to the bank’s condition.

Some savings banks are extremely modern and alert to stimulate savings. One such mutual institution flourishes in New York City, and has a large list of members or owners among the working people of the city. It has three principal methods of savings, called: (first) saving shares, and (second) installment shares, and (third) income shares.

Saving Shares.--The plan of saving shares appeals to those who are unwilling to be bound by any particular plan of saving, and prefer to save as the impulse and the occasion arise. This plan, while similar to the usual savings plan, has the advantage of what is sometimes called the “Shareholder Agreement of Guaranty”--paying annual dividends of 4½%, credited quarterly or semi-annually and compounded if allowed to remain on deposit. By this plan amounts ranging from $1.00 to $5,000 may be deposited with the bank.

Withdrawing of either the whole or any part of the amount on deposit, together with all accrued dividends, may be made without notice during usual circumstances, though the banking law specifies that sixty days notice may be required in unusual cases.

Dividend earnings begin the first of the month following date of deposit, and no time is lost awaiting a dividend period. During the months of January and July deposits received before the tenth draw interest from the first of the month.

Installment Shares.--To those who prefer a definite plan of saving and are in a position to follow through systematic deposits of a definite amount the banks offer a plan ranging upward from the payment of $1 monthly, applying on the $100 shares. On ten shares--$1,000--he would make regular payments of $10 monthly until the completion of the required payments, together with compounded interest, equaling the maturity value of the share for which he has obligated himself to pay. There are many variations of this plan, taking into consideration the amount of shares the depositor wishes to buy and the period of time in which he wishes to pay for them. This type of investment pays 6% annually and is credited and compounded quarterly or semi-annually.

These installment savings pay a higher rate of interest, in most cases amounting to 1½% more than the usual interest rate paid on savings deposited in the ordinary way. On the plan of $1 payable monthly, as applied to ten $100 shares, with compounded interest dividends, the shares reach maturity in about seven years. However, by occasional advances in payments the depositor can, of course, expedite maturity in less than six years.

Should the shareholder desire to withdraw his savings before maturity he may withdraw the entire amount, together with 90% of the accrued earnings.

On the monthly purchase plan of ten shares, if withdrawal is made prior to maturity the following interest dividends are paid: 4% per annum semi-annually compounded, if withdrawn within three years; 5% per annum semi-annually compounded, if withdrawn after three years and prior to five years; 6% per annum simple interest, if withdrawn after five years and prior to maturity.

By this plan of saving the systematic depositor who follows a definite course of saving profits to a much greater degree than the person whose deposits are spasmodic and who in that way secures only the usual interest rates.

If the depositor is in arrears in his monthly payments on or before the fifth day of each month, his deposit doesn’t begin to earn interest until the first of the month following payment. It is advisable for shareholders to make payment of their installment on the first of each month thus obviating the hazards of delays in mail and also give the bank clerks sufficient time to make entries on the books prior to the fifth of the month.

Should the shareholder be confronted with the need to raise cash, he may borrow from the bank on his shares at the regular interest rate by putting up his shares as collateral security. He may borrow up to ninety percent of the amount of the shares subscribed for.

On the installment plan of payment for shares, when $100, the maturity value, is reached, the shares are automatically retired at full value, and disposition may be made either by transfer to his savings share account or exchanged for income shares, whichever the owner prefers.

The installment saving share plan is open to any person of legal age, or to any group of persons of legal age who wish to combine their savings and purchase shares by this plan. In the case of minors, application may be made by any person of legal age, as trustee for the minor, or as trustee for another person not making personal application.

To the investor who prefers the returns from his investment payable in cash periodically, banks offer a class of Guaranteed Income Share Certificates. These certificates are issued in $100 or larger denominations and by the guaranty plan are guaranteed as to both principal and dividends, at the rate of 5½% annually. Interest dividends accrue from the date the certificates are issued and payments in cash are due on January and July 1st. The income shares under this class may be withdrawn as the holder desires, three years after issuance, upon sixty days’ written notice (though some banks do not insist upon this formality.) In times of unusual business conditions other legal provisos regulating the withdrawal of deposits are sometimes imposed.

Those of a “gambling” turn of mind will not find Income Shares particularly appealing, as this type of investment appeals to the conservative investor who, first of all, wants a safe and definite income-producing investment. These shares are not given a listing on stock exchanges, as this type of security is bought with a view to holding for income, and not to be placed on the market for sale. This explains why there is no dealing in this type of securities, such as the listed stocks and bonds, and, consequently, no quick market for their sale. To offset this seeming disadvantage, the investor would do well to consider that they have a fixed value and are not subject to fluctuations suffered by listed securities on the daily market. What advantage is a quick sale, when the holder of the security has to sell at the bidder’s price? While, it is true, the non-speculative, conservative investor cannot expect to make unusually large gains in his principal, on the other hand, the advantages offered by the certainty that the principal and income will be collected in full at maturity greatly offset the allurements of speculative investments.

SAVINGS THROUGH INSURANCE

Modern insurance is one of the cheapest things a dollar will buy, also one of the most systematic methods of saving. It is a social device, based on statistics, which distributes individual risk of death or poverty to all those insured. Also, an insurance policy is a liquid asset that has a substantial cash value after a few years. Is not an expense, since it sells for cost-plus, the latter representing a necessary expense, as regulated by law. Few businesses are nowadays so closely regulated in the public interest as insurance, for insurance companies are strictly controlled by detailed laws, and the person interested in saving assumes no risk when he buys insurance from a recognized company. All our nationally known companies are thoroughly reliable, their rates fair, and what they sell fairly well standardized and without “catches” or “jokers.”

Life insurance offers methods of saving for working people.

More insurance on this straight life plan is issued than on all other plans put together, and more purposes than are often considered by those outside insurance work. The young man dependent upon current earnings takes a straight life insurance on which he pays a yearly premium of a comparatively small sum, and on which no money is paid by the company except at his death, when his wife or whomever he assigns it to receives it all.

There are those who believe it is the cheapest and best form of systematic saving there is. The insurance on this ordinary life policy will be paid in a single sum, or if you so direct it will be paid as an income, monthly, quarterly, half-yearly or yearly to your heirs or “beneficiary.” Women often know little about the value of a large sum of money, and they seldom know anything about investments. So if a policy is paid in a single sum there is great danger that the money will be lost through unwise investment or possibly through extravagance. There are ghouls who prey upon women who have just secured insurance money. But if the policy is paid in installments a steady income is supplied which cannot be lost.

The income may run during a term of years or throughout the entire lifetime of the beneficiary.

But that is only part of the protection of a straight life insurance policy. At slight additional cost you may have a provision in the policy under which, if you become totally and permanently disabled before you reach the age of sixty, a life-long monthly income, beginning immediately, and increasing fifty percent at the end of the first five disability years, and an additional fifty percent at the end of the second five disability years, will be paid you; and in the future all deposit or premiums will be canceled. This gives protection against poverty from any physical disaster.

The parents who are concerned as to the cost of a college education for their boy or girl may take out a twenty-year endowment policy requiring an annual payment of a proportionately larger sum, the whole of the amount of the insurance being received at the end of twenty years.

An endowment policy is also an ideal policy for those desiring to save systematically and regularly so they may enjoy the fruits of their savings after they reach the age of sixty or sixty-five. For example, if a man of forty were to take this policy and choose sixty for the age for payment of the endowment sum and for the beginning of his life-long income he would make his premium deposit annually or quarterly as he might desire until he reached the sixty-year age. He would then receive a cash payment of the endowment sum, and beginning one month later would receive a monthly income as long as he lived. Such a policy participates in the annual distribution of the company’s surplus. This participation materially increases the endowment and insurance value if thus applied.

These are but two examples of the many policies issued by the various companies. All policies issued by recognized companies are excellent investments. Those interested in saving would do well to talk over the possibilities of insurance as a saving medium with an insurance salesman, as they nowadays have well equipped services for advising individuals concerning their particular saving situation.

An interesting method of using insurance as a saving plan for specific children, is for a mother or father to insure himself or herself each time a child is born, for a specific sum--$1000, $2000 or upward. By the time the child is grown, the 20 year endowment policy will have run out and a sum be ready for a college education.

SAVINGS THROUGH EMPLOYERS

Within the last 15 or 20 years, employers of labor have gone a long distance in matters of employe well-being. One of the most notable steps is the making possible, by systematic methods, savings which the workers would never have accumulated if left to themselves. A responsible employer who operates a carefully worked out savings plan, is a wonderful aid to thrift and accumulation. It is simplicity itself for an employer to set aside, with the consent of the employe, a certain weekly portion of earnings which will be held as a savings deposit. By this means the certainty of saving is greatly increased, because the thing works automatically, and since the employe doesn’t get the savings portion into his hands, there is no temptation to change the plan or divert the savings to other things.

Some of the largest and most benevolent corporations not only save the employe’s money, which is entrusted to them, and compound its interest, but go so far as to offer to add to workmen’s savings as an inducement. Thus, for instance, the Metropolitan Life Insurance Company deposits to the benefit of each clerk, an amount equal to one-half the deposits made in its “Staff Savings Fund” during the year.

The employe is permitted actually to earn what amounts to 50% interest on his own savings plus ordinary interest. Few men of wealth, even if owning remarkably productive businesses, could match such a return.

The United States Steel Corporation and many other large corporations have a method whereby employes are encouraged to own stock in the company. Over 60,000 of the 250,000 United States Steel Corporation employes are now stockholders. The plan operated is to give the worker the privilege of paying for stock on a monthly instalment basis to be deducted from salary or wages. Employes receiving $1,250 or less wages per year may subscribe to one share, and others of higher wage are permitted to subscribe to larger numbers of shares. Like the Metropolitan Insurance Company, the United States Steel Corporation is benevolent enough to pay a premium to the saver. Those who keep for one year the shares of stock purchased receive a special bonus of $3 per share; those who keep them two years receive $4 per share; and so on up to the fifth year, for which the bonus is $7 per share. This bonus is in additional to all regular dividends.

Furthermore, employes in many companies have been privileged to purchase stock at prices below quotations on the stock exchange. Further security is given the employe who holds the stock longer than five years by arranging a special compensation; if the subscriber dies, is disabled, or is pensioned by the company, he is given his stock in full and still enjoys its various benefits. Perhaps the most startling instance of how an employe’s resolve to save brings him profit, is the instance of 12 United States Steel Corporation employes who bought stock in 1903 (both common and preferred)--at about the same time when Mr. Munsey with all his wealth bought many thousands of steel shares. These twelve workers, who paid a total of $46,000 for their steel shares at that time, have now _more than doubled their money_, through the rise in value of the stock. In other words, they not only have their stock, but they have made a net speculative profit of $55,000, _which is an average of about $4,800 profit per man, or about $230 per year per man, exclusive of dividends_.

This sum represents interest on about $3,800; which is actually more than these workers earned in a year. To put it another way, these steel workers who purchased stock in their employer’s company, grew with the company and profited just as the rich investors in the corporation did, to the degree that they actually earned more money than the interest on their total year’s salary amounted to, _each year for 21 years._

Let us take another example, that of the Proctor & Gamble Company, makers of Ivory soap. This company, which has become famous for its policy of guaranteeing employment to its workers, operates a plan permitting employes to purchase shares equal to or slightly exceeding wages or salary each year; the plan being to pay for it on 5% of wages or salary. The company agrees to pay, during the first year, twice the amount of the savings, or 10%, and for each additional share up to the eleventh year, adds 1%, so that when the eleventh year arrives the employe actually achieves 20% return on his investment for 11 years. About 65% of the employes eligible for this plan have subscribed to it and are saving in a systematic way.

Employers also frequently operate special fund savings plans for vacation time or for Christmas time--sometimes also for home ownership. The merit of this plan is also its systematic and automatic method of operation. Workers invariably save more freely when given a chance to operate in this manner through their employers.

Of course employers also operate pension systems and benefit systems for employes who become ill or die, but that is outside the scope of this book.

GROUP INSURANCE PLAN

Of late years interest has been shown in group insurance plans. This was first brought to public notice through the government group insurance plan for the war veterans. Insurance science became highly developed in the course of working out Uncle Sam’s war veteran problems, and now employes of companies are given opportunities for insurance benefits on a new and unusual basis, which, because of the large number of risks at one time, affords various advantages such as, for instance, the elimination of medical examination.

Other than this, the payment for this insurance is by arrangement with the employer, who not only aids in paying for it through his own funds, but deducts systematically the cost of the insurance from the worker’s wages. The reduction in costs, both of sale and collection, afforded to the insurance company, permits it to offer greater benefit to the insured.

Some insurance companies call their plan a “Salary Savings Insurance” and the plan is obviously as much a savings plan as it is an insurance plan, since, like all insurance, this group insurance has a cash value. Various forms of this type of insurance are available. The employer, under some forms, designates the number of months over which payment is to be made, and the plan also provides for choice between payment in one sum; payment partly in one sum, and balance in installments or payment weekly over a period of a year or fifteen months. The following table, that of the Prudential Insurance Company, gives some idea of the payments and the intervals of payment for each thousand dollars of group insurance and thus furnishes the basis of examining the workings of this insurance plan in detail:

Amount of Amount of Number of Each Monthly Number of Each Monthly Months During Installment Months During Installment Which Monthly Per $1000 Which Monthly Per $1000 Installments of Amount Installments of Amount Would be Paid so Payable Would be Paid so Payable 6 $167.03 34 30.49 7 143.31 35 29.67 8 125.52 36 28.90 9 111.67 37 28.17 10 100.60 38 27.47 11 91.53 39 26.81 12 83.99 40 26.18 13 77.60 41 25.58 14 72.12 42 25.00 15 67.38 43 24.45 16 63.23 44 23.92 17 59.59 45 23.42 18 56.36 46 22.94 19 53.47 47 22.47 20 50.87 48 22.03 21 48.52 49 21.65 22 46.38 50 21.23 23 44.43 51 20.83 24 42.55 52 20.49 25 40.98 53 20.12 26 39.37 54 19.76 27 38.02 55 19.46 28 36.76 56 19.12 29 35.46 57 18.80 30 34.36 58 18.48 31 33.33 59 18.21 32 32.36 60 17.95 33 31.45

Many employers add of their own accord $500 to $1000 worth of insurance and thus make a contribution to the total.