1870's Bank Questions

Factual Questions
1

Let’s say I am a successful rancher in Abilene, Kansas in the mid 1870’s. I have managed to scrape together $10,000, my life savings, and I decide to deposit it in one of the local town banks for safe keeping. I have some questions about how this might actually work:

  1. Do I collect interest on my deposits? If yes, what percent interest can I expect to get?

  2. Can I write checks against my deposits? Will the local merchants take a check?

  3. Does the bank keep my money onsite or would it be more likely be shipped somewhere else that is more secure?

  4. If the bank I chose is robbed by outlaws, and all of their cash is cleaned out, am I out $10,000 or is the bank somehow insured against losses? I realize that there is no FDIC insurance at that point in time.

2

  1. Yes, probably no more than 3%.

  2. Dunno; I suspect the vast majority of bank accounts at that time did not have at-will check-writing. You could of course always go down to the bank and get a note drawn on your account. Local merchants would accept it based on the reputation of the bank in town. The farther away or less known the bank, the bigger premium the merchant would charge to accept the note.

  3. No bank keeps your money, that wouldn’t be very profitable. Most of it will be lent out to customers who need loans, or invested in other ways.

  4. Depends on the bank. There were private insurers at that time, but I would guess that regulations requiring mandatory coverage were spotty at best until the FDIC era.

3

This not totally dissimilar question attracted some interesting answers.

4

Then, as now, it depends on how long you’re willing to tie up your money. If you made a “demand deposit”, that you could withdraw at any time, you’d probably get nothing–per Monetary Economics, “Until the mid-Twentieth Century, demand deposits in most countries did not pay interest rates, but savings deposits in commercial banks did do so . . .”

If you were willing to accept ten days notice before withdrawal, you might get a little interest. Tie your money up for a year, and you’d get a little more. Probably not a lot, though–the 1870’s were a time of deflation and low interest rates.

No to the first, maybe to the second. Bank notes were the closest pre-Civil War equivalent, although bank notes are “bearer notes” and circulate. During the Civil War the federal government effectively restricted bank-note issue to nationally chartered banks, so state-chartered banks started using checks and then at-will checking accounts as a substitute–first for businesses and gradually for consumers.

As of the 1870’s, though, it’s unlikely you’d find a personal checking account in Abilene. And if a merchant accepted a check, it would be personalized and certified, more like a cashier’s check today.

As noted, most was out on loan. Cash would be kept partly in the vault, partly (maybe) at a larger regional central bank.

Loss of cash might not be fatal, precisely because not all of the assets were in cash and on site. If the bank did fail, for whatever reason, there might be state-run insurance or the bank might have private insurance with a larger bank. If neither applied, the bank would be liquidated and you’d get only a fraction of your money back.

5

Thanks for the responses.

While the chance of my bank getting held up was relatively low, I can now understand why the townspeople would often respond to a bank holdup with their guns as quickly as law enforcement did. If they had their money in the bank there was a risk of them losing some of it, at least the part that wasn’t loaned out or kept off premises.

Given the chance of losing your money in a bank holdup, the fact that interest rates were almost nothing, and that you couldn’t easily write a check against your funds, I’m surprised that anyone deposited money in a local bank.

Now I see why so many people hid their money in their mattress or had a safe at home to keep their cash and valuables.

6

Of course, even today, but especially a century or two ago, a typical crime story started off with “the old man/woman was a miser and rumor has it there was a huge sum of money hidden in the house.” Or, like Merchant of Venice, the ungrateful child took off with your life’s savings. (There once was a man from Nantucket, who kept all his cash in a bucket, His daughter Nan, ran away with a man, and as for the bucket- Nan tucket.)So risky as a bank was, keeping too much in the house was even riskier.

There was the ending scene in the sequel to “The Immigrants”, where the prodigal sons find their way home, only to discover the money that had cost so much suffering and death was worthless banknotes from a bank that had gone under. I suppose that’s another risk - currency as meaningful as how close you are to the bank that will redeem the notes for cash or gold.

I suspect the point with interest was - you want your money to make something, buy a bond and commit to tie it up for a fixed period. Remember that bonds (or flashy paper with seals) played a prominent part in many westerns too?

I’m sure the bank was liable for any major losses, and hence the need to protect the cash; butit was still a bank doing business. If they got robbed one day at noon, there’s still saloon bringing their deposit in at 5PM, the rancher depositing a cheque from the Chicago meat packers, the railroad station bring in ticket receipts, and the mortgage payments at the end of the month - so the proportion of deposits NOT sitting as cash in the vault would still be earning and money would still come in.

Anyone have a clue what typical loan and mortgage interest rates were in those days? The spread between deposit interest paid (zero) and interest charged on loans gives you a good idea as to the risk that the bankers assumed they were taking on.

Also remember - most of these small towns were just that - small towns. We assume from life in the big city that nobody has a clue about the stranger next door. No, small towns are all gossip. SOme stranger rides into town, or is seen camping in the gully a few miles away, or tracks of strangers wandering around near town - some busybody will tell everyone else, including the sherriff. People will watch out. It was not until the advent of the motorcar in the 1920’s and 30’s that you could drive into town and hit the bank before they knew what was coming, and be 200 miles away before they figured out what had happened.

7

FYI There is a novel by Ken Follett called A Dangerous Fortune which portrays a banking family in the late 19th century. I don’t know how much research he did or how accurate, he claims to have done a lot for the story but the book goes into the practices of banking in that time period.

8

Just how much is $10,000 in 1870 in today’s money?

9

According to this site - $168,270.22 (in 2008 dollars)