Automatic Savings-to-Checking Transfer and Negotiable Orders-of-Withdrawal Accounts

In a study of automatic savings-to-checking transfer and negotiable orders-of-withdrawal accounts, 18 banks and savings and loan institutions were compared. They were selected from six major cities on the basis of the variety of plans they offered. Nine models of depositors in low-, middle-, and moderately high-income brackets were developed to evaluate all the alternative plans. The amount of income available from deposit in checking and savings accounts was varied; the net benefits for each type of depositor using each account alternative was calculated based on 3 months of savings and checking activity for each model using each of the plans selected. The benefits varied widely. It was found that the minimum required by the banking institutions was the key factor depositors should consider when deciding whether to use a transfer plan or regular checking and savings accounts. All but the lowest income depositors would usually benefit from transfer plans. However, most consumers would find it difficult to compare various plans using the information currently available in printed materials prepared by financial institutions. Consumers were advised to (1) use transfer plans only when they can meet the minimum balance requirements, and (2) ask bank officials for more detailed information on the frequency of interest compounding, impact of account activity on service charges, and calculation of the minimum balance requirement.