Rates on Passbook Accounts Outpace Others in Survey

Most major California banks have dropped the rates paid on regular passbook savings accounts to as low as 4.75% from 5.5% in the last two months, the first widespread declines in those once-stable accounts in years, according to a survey to be released today by a consumer group.

But those accounts--ridiculed in recent years as financial dinosaurs because of their low rates--ironically now pay more than many money-market mutual funds and money-market deposit accounts, whose rates have dropped even further, other surveys show.

As a result, passbook accounts are making a comeback. Funds in passbook accounts and other regular savings accounts at banks and savings and loan associations nationwide have risen about 13% since January, to $344 billion from $304 billion, according to Federal Reserve Board data. Funds in the accounts had fallen 42% between mid-1978 and the end of 1984.

In many cases, “passbook savings accounts are more attractive than money-market accounts,” said Ken McEldowney, executive director of Consumer Action, a San Francisco-based consumer group that conducted the California passbook survey.

Rise Was Expected

The lowering of passbook rates comes about five months after the lifting of federal regulations that had prohibited savings institutions from paying more than 5.5% on passbook accounts. But instead of raising passbook rates, as was the intent of that deregulatory change, banks instead have kept passbook rates the same or dropped them amid lower interest rates in the economy overall.

Security Pacific National Bank became the first major California bank to cut its passbook rate when it dropped it in August to 5% from 5.5%.

Since then, 18 major banks in the state, 58% of the 31 surveyed, had dropped their rates as of Oct. 9, Consumer Action said. Most went to 5%, although some have gone as low as 4.75%, the survey said.

Major California banks generally have been more eager to cut their passbook rates than major banks nationally, experts said. Only a handful of the nation’s top 100 banks have cut their passbook rates, said Robert Heady, publisher of Bank Rate Monitor, a North Palm Beach, Fla., newsletter.

By comparison, all of the state’s top four banks--Bank of America, Security Pacific, Wells Fargo and First Interstate--have lowered passbook rates to 5%, Consumer Action said.

However, while most major banks in California have cut their rates, only five of the 42 California S&Ls; surveyed have done so, Consumer Action’s McEldowney said. He suggested that S&Ls; could be reluctant to cut rates because they might rely more heavily on passbook deposits than banks and thus fear losing deposits. Also, he said, S&L; depositors might be older and thus less likely to accept a change in their traditional banking relationships.

The recent declines put the average passbook rates at 5.2% for California banks and 5.47% for S&Ls;, Consumer Action said.

However, rates on other savings vehicles have fallen even lower in some cases. The average rate on money-market deposit accounts at the 10 largest banks in Los Angeles is 5.13%, with some banks paying as low as 4.75%, Bank Rate Monitor’s Heady said.