[Name deleted]

Dear [Name deleted]:

This is in response to your letter dated July 16, 1997, concerning savings deposits. In particular, you inquired about interest, required reserves, and transfer limitations on savings deposits.

[Corporation] is proposing to open a series of savings accounts in the name of [corporation] as agent for its depositors, and redeposit depositors' funds in these accounts in such a manner that no bank account has more than $100,000 in it. Depositors' access to these funds would be through a transaction account opened by [corporation] at one depository institution, to which funds would be transferred from one or more of the savings accounts by ACH transfer.

Since interest may be paid and reserves are not required on savings accounts, your inquiry turns on whether your proposed savings accounts qualify as savings accounts for purposes of the Board's Regulation D. Regulation D limits savings accounts, among other limitations, to accounts

from which . . . the depositor is permitted . . . no more than six transfers and withdrawals . . . per calendar month or statement cycle . . . to another account (including a transaction account) of the depositor at the same institution or to a third party by means of a preauthorized or automatic transfer, or telephonic (including data transmission) agreement, order or instruction. . . .

112 CFR 204.2(d)(2).

The Regulation provides exceptions, however, for withdrawals and transfers made in person or by mail or messenger and for transfers made through an ATM machine to a transaction account of the same depositor at the same institution.

Such an account is not a "transaction account" by virtue of an arrangement that . . . permits tranfers of funds from this account to another account of the depositor at the same institution or permits withdrawals (payments directly to the depository) from the account when such transfers or withdrawals are made by mail, messenger, automated teller machine, or in person . . . .

Id.

In your case, you are proposing to effect transfers out of [corporation]'s savings accounts through ACH operators at the depository institution where [corporation]'s related transaction accounts are maintained. As we understand it, the transaction account for each savings account or group of savings accounts is located at a different depository institution from the related savings account or accounts. These transfers are thus not made by mail or messenger, through an ATM or in person, and are not transfers from a savings account to another account of the depositor at the same institution. Therefore, they do not qualify for an exception to the limitation on preauthorized or automatic transfers and telephonic (including data transmission) orders or instruction. In short, these ACH transactions on a savings account are subject to the six-transfer limit.

Therefore, Staff believes that your proposed savings accounts would not qualify as savings accounts for purposes of Regulation D unless the number of transfers, including ACH transfers, is limited to six per month or statement cycle. For purposes of the definition of savings account (as opposed to eligibility for NOW accounts), the number of beneficial holders is irrelevant. If the number of transfers is not so limited, the proposed accounts would be transaction accounts subject to reserve requirements. Unless the entire beneficial interest¹ in the proposed accounts is held by individuals, or nonprofit organizations or governments eligible to hold NOW accounts, these transaction accounts would be demand deposit accounts, See §§ 204.2(b)(2) and (b)(3) of Regulation D, 12 CFR 204.2(b)(2)and (b)(3).

The Board's Regulation Q (and analogous regulations at other Federal regulatory agencies for depository institutions) implement Federal statutes prohibiting the payment of interest on demand deposits. Regulation Q defines demand deposits for purposes of the prohibition to mean any deposit that is a demand deposit under § 204.2(b) of Regulation D. Therefore, [corporation] would not be allowed to receive interest on its proposed savings accounts unless the accounts qualify as either savings accounts or NOW accounts.

This staff opinion is limited to the facts and circumstances presented. Different facts and circumstances, including multiple savings accounts at the same depository institution,² could result in a different result.

I hope this information is helpful. Further questions may be directed to Rick Heyke on my staff (202/452-3688 or to the undersigned.

Very truly yours,

(signed) Oliver Ireland

Oliver Ireland

1. See Staff Op. of July 25, 1988, Federal Reserve Regulatory Service (FRRS) 2-341.15, for a discussion of a trust account in which a law firm had an interest in the deposited funds for its fee, even though it had no interest in the interest earned on those funds. Staff found that this account did not qualify as a NOW account. Return to text

2. See Board Interpretation on Multiple Savings Accounts Treated as Transaction Accounts, 12 C.F.R. 204.133 (FRRS 2-286). Return to text