Froogle | Glossary

A corporation formed to maintain savings and checking accounts, issue loans & credit, and deal in negotiable securities issued by government agencies and by corporations. Banks are strictly regulated and fall into the following three categories according to the limitations upon their activities.

COMMERCIAL BANK: the most common – and most unrestricted – type of bank; allowed the most latitude in its services and investments. Its major limitation: it must keep [on reserve] a larger percentage of its deposits [than the other two types of banks].
SAVINGS BANK: the least common type of bank (prevalent only on the East Coast and in the Midwest – of the USA). Its major service traditionally has been the time-savings account, from which money could be withdrawn only after a set period (or upon thirty days’ notice). Its services, however, have been expanded in some instances. By law a savings bank’s investments are usually limited to certain corporate (and government) bonds/securities. Its advantages:
it can pay higher interest rates than commercial banks;

it has certain tax benefits; and

it can keep [on reserve] a smaller percentage of deposits.
Usually, the bank is owned by its depositors [as creditors] whose dividends are paid as interest on their accounts.
SAVINGS & LOAN ASSOCIATION (OR BUILDING & LOAN ASSOCIATION): similar to a savings bank (in history/operation), except that the savings & loan association’s primary purpose has been to provide loans for purchasing/building homes. In 1981, these institutions were authorized to offer a variant on checking accounts – called a Negotiable Order of Withdrawal (“NOW” account) – which allow depositors to write checks against their interest-bearing savings account.

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