SAVERS MAKE A DASH FOR CASH : Higher Yields Are Making Depositors Fickle Customers

Competition for deposits among California’s banks and thrifts is at its fiercest level in years and has pushed yields on savings certificates close to--and in some cases well beyond--10%.

Partly because of rising interest rates in general, the higher yields also reflect heightened competition for deposits in the wake of savings withdrawals totaling more than $50 billion from the troubled savings and loan industry in the past year.

The current barrage of newspaper advertisements best reflects the pulse of the competition. They tout new Saturday hours at Bank of America, deposit bonuses at Gibraltar Savings and gifts from Tiffany’s at Pacific Savings Bank.

The competition “has been absolutely intense, particularly in the past three or four months,” Robert B. Shaw, vice president of Great Western Bank in Beverly Hills, said. “It has been an absolute war out there.”

Virtually unknown 10 years ago, deposit competition has spawned a group of aggressive and savvy savers known as “rate chasers,” for whom institutional loyalties are less important than high interest rates on their deposits.

It has also spawned a new breed of entrepreneurs who make a living advising savers where to get the best yields for their money. A cluster of newsletters, based in south Florida, now assists depositors chase the rates across state lines.

Ranging from yuppies to widowed grandmothers, rate chasers are bound mainly by their desire to get maximum bang from their bucks at no risk to their principal. Deposits at banks and thrifts are insured up to $100,000 by the Federal Deposit Insurance Corp. and the Federal Savings and Loan Insurance Corp., respectively.

The best yields on savings come from so-called certificates of deposit, which are invested for periods ranging from several months to several years. Generally speaking, the longer savers are willing to leave their money on deposit, the higher the interest rate they will get.

The competition is particularly fierce in the affluent retirement communities that dot the state of California. “Those are the best, most stable markets for deposits,” said Salvatore Serrantino, a banking consultant for California Research Corp. in Santa Monica.

Seven financial institutions are clustered around a side entrance of Leisure World in Seal Beach, while the vast shopping district next to the Leisure World in Laguna Hills has about a dozen banks and thrifts.

Whereas most Great Western branches have deposits ranging from $60 million to $120 million, Shaw said, the firm’s Laguna Hills branch has savings deposits in excess of $200 million.

“The savings and loan next to a retirement community is a gold mine,” said Michael Tenzer, chief executive of Leisure Technology, a Los Angeles-based company that builds retirement housing nationwide.

Deposit-taking started down the road to cutthroat competition in the late 1970s, when soaring interest rates turned the once-comfortable business on its collective ear. Until then, interest rates on savings accounts were generally capped by law at less than 6% for banks and thrifts.

When interest rates climbed into double-digits, savers by the millions withdrew dollars by the billions from banks and thrifts and placed them into high-yield money market mutual funds. Under heavy pressure from bankers, Congress responded by gradually deregulating interest rates on deposits, a move that eventually led to today’s free-for-all conditions. Today, banks and thrifts fight for deposits with money-market funds and government-backed securities, such as Treasury bills.

The heightened competition can be bewildering for savers who are not sure which banks and thrifts are healthy and which are not. That their deposits are insured up to $100,000 is not enough to prevent them from worrying about the safety of what is often their life’s savings and wondering whether FSLIC will make good on its pledge.

That fear is rampant among older depositors in the savings and loan industry, whose FSLIC deposit insurance fund has been bankrupted by hundreds of thrift failures. Congress is now putting together a taxpayer-assisted bailout plan for FSLIC that is expected to eventually cost more than $150 billion.

One problem is that the weakest thrifts often offer the highest rates, simply because they need the money to pay the bills and keep their doors open. Gibraltar Savings, for example, is having serious financial problems.

That’s why California’s biggest and healthiest thrifts, such as Great Western and Home Savings of America, consistently advertise how safe they are. Also, by emphasizing safety and security, it permits them to pay less for deposits than their high-paying competitors.

In one recent ad, Home Savings pointed out that it is making money, adding branches and taking in record volumes of deposits even as the industry as a whole is suffering huge losses and withdrawals. Home Savings, headed by Richard H. Deihl, is the nation’s largest thrift.

“We are so tired of hearing about the . . . crooks and the inept management,” Deihl said, referring to two reasons for the industry’s current maladies. “There’s no way we can fight back” except by advertising.

The Home Savings pitch is effective with older depositors whose memories date back to the traumatic bank failures of the Depression when customers did lose their life’s savings. It was those failures more than five decades ago that sparked the formation of deposit insurance funds for banks and thrifts.

Dell Pirus, a 71-year-old widow who lives in a mobile home park in Orange County, grew up during the Depression and frets constantly about where to deposit her money, particularly because so many savings and loans are in so much financial trouble.

“I’m not necessarily going for the highest rates,” Pirus said. “I don’t know where the thrifts are going. I want to live another 35 years, and I need this money.”

But other retirees, less affluent than Pirus and even more dependent on interest income to survive, are the most likely rate chasers--scouring the market for the highest rates, no matter what the health of the financial institution.

“The problem is: the good (thrifts) are not giving the best rates of return,” said Edith Tait, a 73-year-old stockbroker in Laguna Hills. “Seniors living on fixed incomes are very anxious about their incomes.”

Most investment experts say chasing rates down to one quarter of a percentage point only makes sense financially if depositors have large amounts of money to invest. There is only a $235 difference on the return of a six-month deposit of $90,000 at 10.25% than one at 10%, points out Lawrence R. Moreau, a money manager in Beverly Hills.

“Chasing the extra quarter or half percentage point, even if you nail it, won’t amount to much if you have under $100,000,” Moreau said.

But chasing rates does give many people, particularly retirees, a raison d’etre. “Their lives are given meaning by looking for the best rates,” said Irving S. White, a Westwood psychologist and expert in consumer behavior. “It’s the total program: it’s the activity, the reading of the papers to find the best rates.”

“The older the savings population,” Home Savings’ Deihl said, “the more they enjoy the activity of managing their money.”

The most aggressive rate-chasers are readers of weekly newsletters like 100 Highest Yields, published by Advertising News Service in North Palm Beach, Fla. These are the depositors who seek the best rates at banks and thrifts across state lines, not just in California.

These publications show that California consumers generally are not getting the highest rates from in-state financial institutions--despite the intensity of the deposit competition. These days, banks and thrifts on the East Coast, particularly in New York and New England, are paying top dollar for deposits, according to a recent 100 Highest Yields survey.

Commercial banks on the East Coast are more aggressive in seeking deposits than those in California, where a handful of large banks dominate the market and are thus able to pay lower rates, deposit experts say.

“California is getting shafted,” said Robert K. Heady, publisher of 100 Highest Yields. “Go east, young man . . . or young woman.”

Deposit competition notwithstanding, there are many depositors who avoid the hunt entirely by leaving their money in so-called passbook accounts, whose maximum rates range between 5% and 6%. According to figures from the Federal Reserve, more than $400 billion is on deposit in low-yielding savings accounts at banks and thrifts.

Savers often leave their money in these accounts because of convenience, inertia or inattention, deposit specialists say, and financial institutions covet these accounts because they represent a large source of low-cost money.

Richard E. Kremer, marketing director at Coast Savings & Loan in Los Angeles, tells of one company president who had $200,000 in passbook accounts, simply because he was too busy to attend to his own personal finances.

“It’s like the shoemaker whose kids go barefoot,” Kremer said.