Instead of cashing a note held by one of its customers, the bank may itself loan money at interest for a short period of thirty, sixty, or ninety days, taking the note of the business man to whom the money is loaned. In most cases, however, unless the bank knows the business man well, a certain amount of _collateral_ is demanded as an assurance that the borrower will pay the loan when it becomes due. The amount of collateral deposited with the bank is usually 10% to 25% in excess of the amount loaned, and it may take the form of stocks or bonds; mortgages on real estate; liens on stock, fixtures, or personal property; or warehouse receipts. When the amount borrowed is paid, the collateral is returned; if it is not paid within a reasonable time, the collateral is sold, and the amount loaned, with interest to date, is taken from the proceeds.
There are, of course, other functions of banks of deposit practised quite generally by all banks, and these will be explained later. The functions just described, however, distinguish banks of deposit in a general way from the other two classes.
A savings bank accepts from its depositors small amounts of money which are not subject to withdrawal by check, but on which it pays a low rate of interest. As a general rule, an account may be opened with one dollar; and when the initial deposit is made, the depositor is furnished with a pass book, similar to the bank book, in which further deposits, interest credits, and withdrawals are recorded. Interest is compounded every four or six months, and money must, as a general rule, remain on deposit until an interest payment date before the depositor receives any interest on it. The usual rate of interest is three per cent, although four is often paid. Frequently, before banks allow deposits to be withdrawn, they demand a certain number of days' notice, usually thirty. It is well to investigate the conditions under which the depositor places his money in the safe-keeping of the bank, because the withdrawal requirements are often stringent. Because of the stability of this class of deposit, banks are always anxious to increase their savings accounts, as a large proportion of the funds may be used for loans.