how did interest in savings accounts work before computers were around?

April 5, 2017 5:39 AM

how did interest in savings accounts work before computers or calculators were commonly available? was it calculated by hand? what was the process like? did savings accounts even accrue interest historically?
posted by and they trembled before her fury to Work & Money (16 answers total)

before computers or calculators were commonly available?

Just to note that this means "before about 1850."
posted by ROU_Xenophobe at 5:46 AM on April 5, 2017 [1 favorite]

Response by poster: Just to note that this means "before about 1850."

Yup, I realize mechanical calculators have been around for a very long time. And it also occurred to me that look-up tables could've existed before calculators too. Just hoping for more information on how it was done.
posted by and they trembled before her fury at 5:56 AM on April 5, 2017 [1 favorite]

Best answer: By manual calculation in paper double-entry ledgers. And yes, interest could be credited or debited. Because it required manual intervention, your account would accrue interest monthly at best, and more likely annually. Most modern accounts do this in the overnight batch every day.

Until about 60 years ago it was all paper-based. Even when mechanical calculators were introduced, the data was still stored in paper ledgers.

The language of financial services still echoes this. We talk about "The General Ledger", we maintain "Books", we "write business."

A business I am somewhat familiar with recently bought the entire mortgage business from another company. The language was all about "buying the book."

In a paper-based system, we would have actually acquired a set of physical books, each containing tabulations of accounts and transactions.

Each month - or possibly year - a team of accountants would have trawled through the book, applying interest and fees manually, and reconciling this with the receipts ledger.

Thousands and thousands of people spent their working lives nose-down in tabulated ledgers, crediting, debiting and reconciling.

Almost all of this evolved fairly rapidly after the emergence of double-entry bookkeeping in 14th-century Italy. (DE systems had emerged at least 500 years earlier in Korea and (almost certainly) China, but Europe is where it took off.)

The paper systems of the 19th century would have been absolutely clear to 14th century Genoan merchants.

The digital systems we have now are exactly the same. Computers let us operate more accounts with more complex relationships, but it's all double-entry bookkeeping. You can do it with a supercomputer, with a laptop, with an abacus or with your brain. All you need is a tabulated record to keep track of it.
posted by Combat Wombat at 6:15 AM on April 5, 2017 [35 favorites]

Best answer: When I lived in a small town in Ohio in the 1970s, the local savings & loan was still updating passbooks by hand and keeping the accounts in ledgers. Interest was paid quarterly. The money I deposited was loaned out locally in home mortgages and farm and business loans. Also, the tellers were really friendly and always insisted I take pens and pencil because I was a student.

A science professor brought a 4 function calculator in to class. The library had purchased a couple of them for @ 400 US each, and he wanted us to recognize that they were the start of a revolution. Thanks, Phil Bayless.

In 1983 I bought a business and did a pro-forma profit & loss analysis, on a literal spreadsheet - a big paper grid. I used a calculator and a pencil and the eraser got a workout.

I bought a house in 1988, and bought a book of mortgage amortization tables so I could decide on the best loan options. Income taxes were calculated using similar guides.

In 1988 I got a job where I got an IBM pc to use. When I got a look at what WordPerfect and Lotus 1-2-3 could do, I was blown away.
posted by theora55 at 6:29 AM on April 5, 2017 [21 favorites]

In 1983 I bought a business and did a pro-forma profit & loss analysis, on a literal spreadsheet - a big paper grid. I used a calculator and a pencil and the eraser got a workout.

I did that when I worked at a behind-the-times CPA firm in 2000-ish.
posted by jpe at 6:36 AM on April 5, 2017 [3 favorites]

Oh, and I ran a business for 5 years using a paper ledger, not double-entry because I never had that training, and as a sole proprietor, I only had to trust myself.

I could insert the traditional snark about my lawn, but, really, computing power has made so much financial analysis possible, and relieved a lot of people from an onerous task.

I could also go on about typesetting and how laser printing and word processing have made a difference, but I'll shut up.
posted by theora55 at 6:37 AM on April 5, 2017 [1 favorite]

No, please, let's continue :)

In 1988 I got a job where I got an IBM pc to use. When I got a look at what WordPerfect and Lotus 1-2-3 could do, I was blown away.

In 1987 I started tracking my personal checking account in a Lotus 1-2-3 spreadsheet in my first PC. I am still using that spreadsheet today, in Lotus 1-2-3. For 30 years, I've been moving that spreadsheet file (filename.WK1) from computer to computer. First it was running on DOS, then in a DOS window on OS/2, then DOS on Windows 95 (shudder), and for the last 15 years or so it's been running in a DOSBOX emulator in Ubuntu Linux (upgraded every 3 years or so). Thank you Linus Torvalds for finally giving us a stable, long-term platform.

You get off MY lawn :)
posted by intermod at 6:45 AM on April 5, 2017 [26 favorites]

In its original meaning a "computer" was a person who computed. So for any computationally intensive task, there would have been a room full of people on stools at desks, writing in ledgers with quill pens. Massively parallel processing.
posted by rd45 at 7:01 AM on April 5, 2017 [6 favorites]

Calculus.

There is actually a bit of history of science controversy (well) about some version of the compound interest equation predating Newton and Leibniz. The daily compound interest is not calculated each day, the amount is inserted into an equation an the result is the amount added to the account from the bank.

Now if you had an insane balance that changed multiple times a day, which would have been unlikely pre-network, it'd need a daily recalculation.
posted by sammyo at 7:31 AM on April 5, 2017 [3 favorites]

Best answer: … and if you want to see an insane amount of calculation, pre-decimal interest calculations in pounds, shillings and pence. There are a bunch of ready reckoners on Archive.org, such as The Model Ready Reckoner and Thomas Collins' The Complete Ready Reckoner in Miniature, filled with tables of percentages of fractional sums.

The complexity of interest calculations might explain why (some?) bonds return simple interest annually, with the compound amount calculated at maturity.
posted by scruss at 9:40 AM on April 5, 2017 [2 favorites]

Best answer: I am still using that spreadsheet today, in Lotus 1-2-3.
Similarly I have an Excel spreadsheet I started in 1990, still in use today, tracking assets, liabilities and net worth, updated annually. I think it has been through at least 6 computers, both PCs and Macs.

Regarding the question: Here's a couple of pages in a vintage savings bank passbook. This would be updated by the teller by hand whenever you went to deposit or withdraw money, and if an interest credit date or dates had passed in the intervening time, usually quarterly, the interest would be added. The bank kept their own record of how much you had, as well, and probably calculated the interest at their end quarterly so they could keep their balance sheet in order. By the 1960s this manual process had been replaced by a loud mechanical calculator/printer into which they inserted your book and printed the latest entries in it. Usually banks were open for business only until 3 p.m. or so, because they needed the rest of the day to reconcile everything manually.

did savings accounts even accrue interest historically?
It says here that in the US savings banks started appearing in 1816. They had been around earlier in Europe.
posted by beagle at 9:44 AM on April 5, 2017 [2 favorites]

(beagle, I had handwritten passbooks from small UK banks well into the mid 1980s. For Post Office Investment Accounts, you had to mail off your passbook and it would take a couple of weeks to come back …)
posted by scruss at 2:11 PM on April 5, 2017

Best answer: In the pre-calculator/computer days, many things were "calculated" via tables. The table were created by hand computation. So, for example, interest compounded daily could be calculated by looking up a value for the interest rate and number of days and multiplying the principal by that value. Then writing it manually in whatever the record was. If you were an actuary, you could do just about all the calculations using log tables.

I had a summer job in a life insurance company in 1967. Every policy had a card (in a big wooden card catalog not unlike the one in a library) with each period's transactions (premiums, interest, loans, loan repayments, etc). When I was there, all the data was also on magnetic storage, and they were talking about getting rid of cards. At that time, calculations were being done with great big electric-powered, mechanical calculators, except the department head had a 4 function digital calculator the size of a toaster.

A year later, I had an interview with IBM, and they were trying to get companies to keep their permanent records on magnetic media instead of using the computer to print every thing on paper. It was hard for the ordinary person (including me) to trust the magnetic media.
posted by SemiSalt at 2:16 PM on April 5, 2017 [2 favorites]

I got a paper passbook when I opened my first savings account at Bank of America in 1991. They updated the entries by hand every time I made a deposit for a few years.
posted by potrzebie at 6:50 PM on April 5, 2017

Usually banks were open for business only until 3 p.m. or so, because they needed the rest of the day to reconcile everything manually.

Except on Fridays (traditional payday). My mom worked as a teller for a downtown Seattle bank. We lived in the south end, and most Fridays dad would pack my sister and I in the car to pick her up after work and head to Alki for Spud fish and chips. Sometimes she had problems with that late-week balance and we had to park and wait for her.
posted by lhauser at 8:14 PM on April 5, 2017

In elementary school in the early 70's, in a bragging discussion about whose dad is richest, one little boy's dad "owns 2 hotels and he gives out pocket calculators to people he meets, just for shaking his hand you could get one". We were all very impressed, but still didn't admit that his dad was richer than the girl whose dad owned the local amusement park (Legend City in Phoenix).

In high school in the late 70's, I worked as a cashier using one of those huge mechanical cash registers with the rows and columns of number buttons. You had to enter the tax manually. There was a laminated card attached to each register that had rows and columns of dollar amount ranges and next to it the tax value to be applied. When the tax in my town was 5%, I could do it in my head by dropping the last digit and cutting the rest in half. I used to wake up in the middle of the night and see the digits on my alarm clock and automatically add the tax.

After college in the mid-80's, I was able to purchase 30 credit-card-sized 4-function calculators (plus the percent function!!, and a memory!!) for $1 each for my classroom so my math students could use them if they needed.

If you want to see some live examples of "computers" as people instead of machines, go see the movie Hidden Figures. It's about NASA and calculations of trajectories (etc) instead of dollars, but it gives a good idea of what it was like to be a person who did all that math by hand every day for a living.
posted by CathyG at 7:50 AM on April 7, 2017 [1 favorite]