Conclusion: Types of Deposit Accounts

Institutions need to be familiar with the distinctions between account types in order to: (1) comply with Regulation D and Regulation CC (funds availability), (2) not violate the prohibition against paying interest on demand deposits, (3) offer Electronic Transfer Accounts, (4) not offer NOW accounts to depositors not eligible to hold a NOW account, and (5) understand the distinctions that deposit insurance regulations make between time and savings deposits, on the one hand, and demand deposits on the other.

The basic Regulation D distinction is between time deposits and transaction accounts. Time deposits are not subject to reserve requirements; transaction accounts are. Each of these basic categories has several subcategories with which institutions should be familiar for purposes of reporting to federal regulators. Regulation D can be found at 12 CFR 204.1 et seq. Regulation CC applies only to transaction accounts as defined by Regulation D.

Institutions are prohibited from paying interest on demand deposits until July 21, 2011. Demand deposits are deposits that have a maturity period of less than seven days or deposits with no maturity period and for which the institution has not reserved the right to require seven days’ written notice prior to a withdrawal. Noninterest-bearing checking accounts are the primary example of demand deposits. Mature time deposits are also demand deposits, but institutions may pay interest after maturity until the depositor withdraws or renews the time deposit, but not for more than ten days after maturity. The prohibition against paying interest on demand deposits can be found in the following regulatory provisions: 12 CFR 217.3 (for national and state member banks), 12 CFR 329.2 (for state nonmember banks), and 12 CFR 561.16 (for state and federal savings associations).

Some institutions offer Electronic Transfer Accounts (ETAs) that are required to have certain characteristics designed to enable lower-income individuals to have a basic, inexpensive, no-frills account at a financial institution in order to receive federal payments electronically.

Individuals, sole proprietorships, certain nonprofit organizations, certain fiduciaries, and persons owning pre-August 31, 1981, NOW account equivalents are eligible to hold NOW accounts. The statute authorizing institutions to pay interest on checking accounts held by these eligible depositors can be found at 12 USC 1832.