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Inactive Financial Institution Letters


Prohibition Against Payment of Interest on Demand Deposits

FIL-78-97
July 31, 1997

 

TO: CHIEF EXECUTIVE OFFICER AND COMPLIANCE OFFICER
SUBJECT: Amendment to Interpretive Rule on Prohibition Against Payment of Interest on Demand Deposits (Part 329 of FDIC's Rules and Regulations)

The FDIC Board of Directors on July 23, 1997, approved the attached amendment to its interpretive rule on the prohibition against paying interest on demand deposits.

The Federal Deposit Insurance Act requires that the FDIC prohibit the payment of interest or dividends on demand deposits. However, an interpretive rule allows an exception to the prohibition. It permits premiums of up to $10 for deposits of less than $5,000 and up to $20 for deposits of $5,000 or more, not more than twice per year. The interpretive rule also limits the timing of such premiums to the opening of a new account or an addition to an existing account.

The FDIC has amended the interpretive rule to provide another exception, which allows premiums that are unrelated to the balance in a demand deposit account and the duration of the account balance. Insured nonmember banks and insured branches of foreign banks are now permitted to give premiums on demand deposits, without limitation as to the amount of the premium, provided that the premiums are not related to, or dependent upon, the balance in the account and the duration of the account balance. This amendment maintains substantial conformity with Regulation Q, 12 CFR, Part 217, recently amended by the Board of Governors of the Federal Reserve System.

For more information about the interpretive rule, please contact Marc J. Goldstrom, Counsel in the FDIC's Legal Division, at (202) 898-8807 or Louise Kotoshirodo, Review Examiner in the FDIC's Division of Compliance and Consumer Affairs, at (202) 942-3599.


Carmen J. Sullivan
Director

Attachment

Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, N.W., Room 100, Washington, D.C. 20434 ((703) 562-2200 or 800-276-6003).

Last Updated 07/16/1999 communications@fdic.gov