Savings bank is a type of savings institution most commonly found in the Northeastern United States. Savings banks offer two main kinds of savings plans–passbook accounts and time deposits. With a passbook account, depositors can withdraw money without giving the bank advance notice. For withdrawal of time deposits, the bank may require prior notification. The U.S. government insures each account for up to $250,000.
Nearly all savings banks were originally mutual savings banks–that is, nonprofit institutions that distribute any profits to their depositors as interest. Mutual savings banks are run by a board of trustees who elect their own successors. But since the mid-1980’s, many savings banks have become stock savings banks, which are run by a board of directors who are elected by stockholders. The stockholders expect the bank to pay them cash dividends from its profits.
Until 1982, the federal and state governments strictly regulated the investments of savings banks. The banks invested chiefly in long-term mortgages and government bonds. After 1982, the banks began making commercial loans and investing in high-risk corporate bonds to earn higher profits for their stockholders. These riskier investments led to the failure of many savings banks in the 1980’s and early 1990’s.
