FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Whether Excess Funds From "Sweep" Accounts May Be Transferred to Interest-Bearing Account
December 6, 1993
Jules Bernard, Counsel
Your letter of November 30, 1993, addressed to Roger Hood, has been forwarded to this office for review.
You describe the following money-management service, which you provide to your commercial customers:
Our data processing system provides "sweep" processing, in which the computer automatically sweeps money in and out of a "primary" account to keep the balance in the primary account at a specified, predetermined level. Currently, the money is being swept out of the company's account and wired to [a securities company] on a daily basis. There, the money is invested in a money market mutual fund. When debits to the checking account at the bank bring the level below the predetermined amount, the bank has the necessary funds wired into the bank from [the securities company] for credit to the customer's account.
Our question is whether the excess funds could be swept into an interest bearing secondary account also owned by [BANK] . . .
The overall answer to your question is "no"--at least not in the case of deposits belonging to commercial depositors. The program you propose would violate Part 329 of our regulations, 12 C.F.R. Part 329.
Of course, your bank could arrange for a commercial customer to sweep money out of a demand deposit and into an interest-bearing account whenever it liked. The difficulty comes when the customer wishes to sweep money out of the interest-bearing account. Part 329 establishes the so-called "six-transactions rule." The rule says that a deposit will be deemed to be a "demand deposit"--and the bank will not be allowed to pay interest on it--if the customer may withdraw funds from it more than six times per month by means of a standing order:
(b) The term "demand deposit" includes:
. . .
(3) any other deposit from which, under the terms of the
deposit contract, the depositor is authorized to make, during any month
or statement cycle of at least four weeks, more than six transfers by
means of a preauthorized or automatic transfer or telephonic (including
data transmission) agreement, order or instruction, which transfers are
made to another account of the depositor at the same bank, to the bank
itself, or to a third party . . . .
12 C.F.R. § 329.1(b).
The Federal Reserve Board has a similar provision in its Regulation D. See id. § 204.2(b)(2); see also id. § 202.4(e) (defining "transaction account'') & Fed. Reserve Reg. Service 2--345.24. I understand that the reserves required for demand deposits and other "transaction accounts" are substantially higher than for other accounts.
If you have any further questions about this matter, or if I can help you in any other way, please call me at (202) 898-3731.