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F ederal r eser ve Bank o f Dallas
DALLAS. TE X A S

75222
C ircu lar No. 79-127
August 2, 1979

AMENDMENTS TO REGULATION Q— INTEREST ON DEPOSITS
New E arly Withdrawal Rules, a New Ceiling Rate, and
Repurchase Agreements

TO ALL MEMBER BANKS AND
OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has adopted
five amendments to Regulation Q, "Interest on Deposits," each of which was made
effective August 1, 1979. The amendments are as follows:
1.

Member banks now may apply the new early withdrawal
penalty rule (forfeiture of three months' interest only on
the amount withdrawn where the time deposit has an
original m aturity of one year or less, and forfeiture of
six months' interest where the deposit has a m aturity of
more than one year) which was effective July 1, 1979,
to a irtim e deposits which are withdrawn early regardless
of when the deposit contract was purchased. T h us, time
deposit contracts entered into p rio r to July 1 which were
w ritten under the old penalty (90 day forfeiture and re v e r
sion to a savings deposit rate) may receive the benefit of
the new e a rly withdrawal penalty.

Member
banks now are required to pay a time deposit
p rio r to
m aturity without penalty upon the death of an
owner of the time deposit funds or upon the owner being
declared mentally incompetent. The amendment applies
to all outstanding time deposits as well as to time deposits
issued on or after the effective date.

The Board of Governors has increased the ceiling rate
payable by member banks on time deposits of 30 to 89 days
from 5 percent to 5 1/4 percent.

Banks and others are encouraged to use the following incoming W ATS numbers in contacting this Bank:
1-800-492-4403 (intrastate) and 1-800-527-4970 (interstate). For calls placed locally, please use 651 plus
the extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

- 2-

For those member banks offering the new fo u r-y e a r money
market certificate of deposit on an open account basis, the
Board has amended Regulation Q to provide that any subse
quent deposits shall c a rry the rates effective on the dates
the additional deposits are made.

F in a lly , the Board has subjected repurchase agreements
(RP's) of less than $100,000 with m aturities of 90 days or
more to the Regulation Q deposit rate ceilings. Member
banks w ith substantial amounts of RP's outstanding should
consult with their appropriate federal regulatory agency.

Printed on the following pages are copies of the amendments as they
w ill appear in the Federal R egister. Enclosed are copies of the amendments.
Member banks and others that maintain Regulations Binders should file the
amendments in th eir binders.
If you have any questions regarding Regulation Q, please contact
the Consumer A ffairs Section of our Bank Supervision and Regulations Depart
ment, Ext. 6171.
Additional copies of the amendments w ill be furnished upon request
to the Secretary's Office, Ext. 6267.
Sincerely yours,
Robert H . Boykin
First Vice President
Enclosures

Title 12 -- BANKS AND BANKING
CHAPTER II -- FEDERAL RESERVE SYSTEM
SUBCHAPTER A —

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Regulation Q]
(Docket No. R-0228)
Part 217 —

INTEREST ON DEPOSITS

Penalty for Early Withdrawals

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY:
The Board of Governors of the Federal Reserve System has adopted
three amendments to the Regulation Q early withdrawal penalty rule.
The first amendment permits member banks, with the consent of their
depositors, to apply the new early withdrawal penalty rule adopted effective
July 1, 1979, to time deposits entered into before July 1, 1979.
The
second amendment requires member banks to pay a time deposit before
maturity without penalty upon the death of any owner when requested
to do so by the owner's representative or by any other owner.
The third
amendment requires member banks to pay a time deposit before maturity
without penalty where the owner of the deposit has been adjudicated
or declared mentally incompetent.
EFFECTIVE DATE:

August 1, 1979.

FOR FURTHER INFORMATION CONTACT:
Anthony F. Cole, Senior Attorney (202
452-3711) or Paul S. Pilecki, Attorney (202-452-3281) Legal Division,
Board of Governors of the Federal Reserve System, Washington, D. C.
20551.
SUPPLEMENTARY INFORMATION:
Application of New Penalty R u l e . Effective
July 1, 1979, the Board amended section 217.4(d) of Regulation Q (12
CFR 217.4(d)) to modify the interest forfeiture penalty required to
be imposed when funds are withdrawn from time deposits prior to maturity
(44 FR 32646).
As amended, the minimum required early withdrawal penalty
is a forfeiture of three months interest on the amount withdrawn where
the time deposit has an original maturity of one year or less and a
forfeiture of six months interest on the amount withdrawn where the
time deposit has an original maturity of more than one year.
No reduction
of interest to the savings rate is required.
When the new penalty rule was adopted, the Board indicated
that it would apply only to time deposit contracts entered into on or
after July 1, 1979, and to preexisting time deposit contracts that are
extended or renewed on or after July 1, 1979.
The Board stated that

-2-

time deposits entered into before July 1, 1979, and not extended or
renewed on or after such date, would continue to be subject to the former
penalty rule, which required a reduction of the rate of interest paid
on the funds withdrawn prior to maturity to no more than the savings
rate, less three months interest at the savings rate.
The Board now has determined to permit member banks, with
the consent of their depositors, to apply the new early withdrawal penalty
to time deposits issued before July 1, 1979, even where those time deposits
are not extended or renewed on or after July 1, 1979.
The Board is
taking this action on the basis of comments received which indicate
that applying
two early withdrawal penalty rules would be difficult
to administer and would result in unnecessary customer confusion and
misunderstanding.
It is anticipated that this action will enable banks
to alleviate operational problems and potential customer confusion and
will result in substantial benefits to customers by permitting member
banks to apply the new, generally less severe, penalty rule to all outstanding
time deposits, with the agreement of the depositor.
Penalty-free withdrawal in the event of d e a t h . Regulation Q
currently provides that upon the death of any owner of time deposit
funds, a member bank, if it so chooses, may pay all or a portion of
such time deposit funds before maturity without imposing the normally
required early withdrawal interest forfeiture penalty (12 CFR 217.4(d)).
On May 30, 1979, the Board invited public comment on a proposal to amend
this provision to require a member bank to pay a time deposit prior
to maturity without penalty upon the death of any owner when requested
to do so by the owner's representative or by any other owner (44 FR
32396).
The period for receipt of public comment on the proposed amendment
expired on July 2, 1979.
After consideration of the comments and the
views expressed therein, the Board has adopted the amendment in the
form proposed.
The amendment applies to all outstanding time deposits
as well as to time deposits issued on or after the effective date.
The Board believes that the amendment will more fully effectuate the
intent of this exception to the early withdrawal penalty rule, which
is to facilitate the administration of estates as well as to ease the
financial burden occasioned by the death of a depositor.
Penalty free withdrawal in the event of incompetence. The
Board has received requests to amend section 217.4(d) of Regulation
Q (12 CFR 217.4(d)) to provide an additional exception to application
of the early withdrawal penalty rule where the owner of time deposit
funds has been declared or adjudicated mentally incompetent by a court
of competent jurisdiction.
These requests note that withdrawals of
time deposit funds held by individuals adjudicated incompetent frequently
are required to provide for the support of such individuals.

-3 -

The Board does not believe that it is necessary for member
banks to apply the early withdrawal interest penalty requirement when
a depositor has been adjudicated or declared mentally incompetent.
Proceedings in insanity or mental incompetency generally are instituted
either to secure commitment to an institution or to obtain the appointment
of a guardian or conservator to preserve the assets of an individual
judged incapable of managing his or her affairs.
An individual adjudicated
incompetent may have limited means of support and may need immediate
access to his or her time deposit funds for support.
The Board believes
that the imposition of the early withdrawal interest forfeiture penalty
in such circumstances may work a hardship by unnecessarily reducing
the funds available for the support and care of such individuals.
The amendment requires member banks to permit penalty-free
withdrawals of time deposit funds prior to maturity where the owner
of the funds has been declared or adjudicated mentally incompetent by
a court or other administrative body of competent jurisdiction when
requested to do so by the owner's guardian, conservator, or committee.
The amendment applies to all time deposits, including those outstanding
on the effective date, issued prior to the date the depositor is declared
or adjudicated incompetent.
Deposits issued or renewed, automatically
or otherwise, on or after such date would be subject to the penalty
provisions since a guardian or conservator would have had an opportunity
to make an appropriate investment decision based on the status and needs
of his or her ward.
Under the amendment, member banks should require
appropriate documentation that the time deposit owner has been determined
to be incompetent at the time the penalty-free withdrawal is requested.
The amendment concerning penalty-free withdrawal in the event
of death was published for public comment.
In view of the substantial
public benefit that will result from adoption of this amendment which
more fully effectuates the intent of this exception to the early withdrawal
penalty rule, the Board finds that good cause exists for making the
amendment effective in less than 30 days.
With respect to the other amendments, in view of the substantial
public benefits that will result (1) from permitting member banks to
apply the new, generally less restrictive, early withdrawal penalty
rule to all time deposits and (2) from facilitating access to time deposit
funds to provide for the support of individuals determined to be mentally
incompetent, the Board finds that application of the public notice and
procedure requirements of 5 U.S.C. § 553 would be contrary to the public
interest.
Moreover, in view of the foregoing reasons, the Board also
has determined that good cause exists for adopting these amendments
without deferring the effective date for 30 days.

-4 -

Therefore, pursuant to its authority under section 19 of the
Federal Reserve Act (12 U.S.C §§ 461 and 37 1b ), effective August 1,
1979, § 217.4(d) of Regulation Q (12 CFR 217.4(d)) is amended to read
as follows:
§ 217.4 — PAYMENT OF TIME DEPOSITS BEFORE MATURITY
*

11/ The provisions of this paragraph apply to all time deposit contracts
entered into on or after July 1, 1979, and to all existing time deposit
contracts that are extended or renewed (whether by automatic renewal
or otherwise) on or after such date.
The provisions of this paragraph
also may be applied, with the consent of the depositor, to all other
time deposit contracts entered into before July 1, 1979.
All contracts
not subject to the provisions of this paragraph shall be subject to
the restrictions of §217.4 (d) in effect prior to July 1, 1979, which
provided that where a time deposit, or any portion thereof, is paid
before maturity, a member bank may pay interest on the amount withdrawn
at a rate not to exceed that prescribed in §217.7 for a savings deposit
and the depositor shall forfeit three months of interest payable at
such rate.
If, however, the amount withdrawn has remained on deposit
for three months or less, all interest shall be forfeited.

-5-

(1)
Where a member bank pays all or a portion of a time deposit
representing funds contributed to an Individual Retirement Account or
a Keogh (H.R. 10) plan established pursuant to 26 U.S.C. (I.R.C. 1954)
§§ 401, 408 when the individual for whose benefit the account is maintained
attains age 59 1/2 or is disabled (as defined in 26 U.S.C. (I.R.C. 1954)
§ 72 im)(7)) or thereafter; or
(2) Where a member bank pays that portion of a time deposit
on which Federal deposit insurance has been lost as the result of the
merger of two or more Federally insured banks in which the depositor
previously maintained separate time deposits, for a period of one year
from the date of the merger.
A time deposit must be paid before maturity without a forfeiture of
interest as prescribed by this paragraph in the following circumstances:

upon

(1) Where a memb|£ bank pays all or a portion of a
of the time deposit funds; or
the death of any owner----

time deposit

(2) Where a member
bank pays all or a portion of a time deposit
when
the owner-- of the time deposit is determined to be legally
incompetent
by a court or other administrative body of competent jurisdiction.***
*

★

lla/
For the purposes of this provision, an "owner" of time deposit
funds is any individual who at the time of his or her death or determination
of incompetence has full legal and beneficial title to all or a portion
of such funds or, at the time of his or her death or determination of
incompetence, has beneficial title to all or a portion of such funds
and full power of disposition and alienation with respect thereto.

By order of the Board of Governors, July 30, 1979.

(signed)

Theodore E. Allison

Theodore E. Allison
Secretary of the Board

[SEAL]

TITLE 12 —
CHAPTER II —
SUBCHAPTER A —

BANKS AND BANKING
FEDERAL RESERVE SYSTEM

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[REGULATION Q]
(Docket No. R-0229)
Part 217 —

INTEREST ON DEPOSITS

Deposits as Including Certain Promissory Notes and Other Obligations

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final Rule.

SUMMARY:
On Ma y 30, 1979, the Board of Governors of the Federal Reserve
System invited public comment on a proposal to amend its regulations
to subject member bank repurchase agreements of less than $100,000 to
the interest rate ceilings of Regulation Q (44 F R 32395) . Such repur
chase agreements arise from a transfer of direct obligations of, or
obligations that are fully guaranteed as to principal and interest by,
the United States or any agency thereof that the bank is obligated to
repurchase.
The period for receipt of public comment expired on July 2,
1979.
After consideration of the public comments and the views ex
pressed therein, the Board has determined to amend Regulation Q to sub
ject member bank repurchase agreements ("RPs") of United States Government
and agency securities of less than $100,000 issued for terms of 90 days
or more to deposit interest rate ceilings of Regulation Q.
RPs issued
in amounts of less than $100,000 for terms of less than 90 days continue
to be exempt from the interest rate ceilings; however, such agreements
may not provide for automatic renewal or extension.
In addition, the
Board authorized a three-year phase-out period for member banks cur
rently issuing such RPs in amounts of less than $100,000 with maturities
of 90 days or more.
EFFECTIVE DATE:

August 1, 1979.

FOR FURTHER INFORMATION CONTACT:
Anthony F. Cole, Senior Attorney (202/452
3711), or Paul S. Pilecki, Attorney (202/452-3281), Legal Division,
Board of Governors of the Federal Reserve System, Washington, D. C.
20551.
SUPPLEMENTARY INFORMATION:
Section 2 1 7 . 1 ( f ) (2) of Regulation Q cur
rently exempts from the definition of deposits any obligations that
"evidence an indebtedness arising from a transfer of direct obligations

- 2 -

of, or obligations that are fully guaranteed as to principal and in
terest by, the United States or any agency thereof that the bank is
obligated to repurchase."
Consequently, these obligations presently
are not subject to the Regulation Q interest rate ceilings.
This general
exemption was established in 1969 in order to facilitate a strong market
for U. S.
Government and agency securities, to provide banks a means
of temporarily financing member bank portfolio positions and to provide
a service to customers w h o desire to invest temporarily in government
and agency securities as part of a cash management program.
The re
purchase agreement exemption was not intended to provide member banks
with a device for avoiding interest rate limitations.
After review and consideration of over 50 comments received,
the Board has determined to narrow the current exemption from deposit
treatment by including within the definition of deposits in Regulation Q
member bank obligations of, or obligations that are fully guaranteed
as to principal or interest by, the United States or any agency thereof
that the bank is obligated to repurchase where such obligations are
in amounts of less than $100,000 and have maturities of 90 days or more.
RPs issued in amounts of less than $100,000 with maturities of less
than 90 days will continue to be exempt from the interest rate ceilings.
Such agreements, however, may not be automatically renewed or extended.
The Board believes that such an amendment will not affect adversely
the practice of providing bank customers, particularly small businesses
and local governments, a vehicle for investing temporarily idle funds
for cash management purposes while maintaining orderly administration
of currently prescribed deposit rate ceilings.
This amendment does
not affect the current exemption for interbank transactions involving
repurchase agreements of less than $100,000.
In order to prevent undue hardship to member banks with out
standing small denomination RPs with maturities of 90 days or more,
the Board has determined it appropriate to provide for a three-year
phase-out period from the effective date of the amendment.
Member banks
currently offering such RPs will be permitted to engage in RP contracts
of less than $100,000 with maturities of 90 days or more without regard
to the interest rate limitations of Regulation Q during this period.
However, the amount of such RPs on a bank's books at any point in time
during the phase-out period shall not be in excess of the amount out
standing on the effective date of the amendment.
This action will not
affect the rates of interest being paid on RPs issued prior to the ef
fective date of the amendment.
Member banks with substantial amounts
of such RPs outstanding should consult with the Comptroller of the Cur
rency, in the case of national banks, and with the appropriate Reserve
Bank, in the case of State member banks, to make arrangements for an
appropriate phase-out program.

TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Regulation Q, Docket No. R-0240]
Part 217— Interest on Deposits
Maximum Rates of Interest Payable on Time Deposits

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final Rule.

SUMMARY:
The Board of Governors has determined to increase the ceiling
rate of interest payable by member banks on time deposits with maturities
of 30 to 89 days from 5 per cent to 5-1/4 per cent.
The Board also has
amended Regulation Q to clarify that where additional deposits to an
existing time deposit account are permitted, such additions are subject
to the ceiling rate of interest in effect on the date the additional
deposits are made.
EFFECTIVE DATE:

August 1, 1979.

FOR FURTHER INFORMATION CONTACT:
Anthony F. Cole, Senior Attorney
(202/452-3711) or Paul S. Pilecki, Attorney (202/452-3281), Legal Division,
Board of Governors of the Federal Reserve System, Washington, D. C.
20551.
SUPPLEMENTARY INFORMATION:
Regulation Q currently provides that no
member bank shall pay interest at a rate in excess of 5 per cent on
time deposits with maturities of 30 to 89 days (12 C FR 217.7(b)).
This ceiling rate has been 25 basis points below that in effect for savings
accounts since July 1, 1979; prior to the July 1 savings rate increase,
the 30- to 89-day time deposit ceiling rate equaled the savings deposit
ceiling rate.
In order to restore the equality of rates paid by member
banks on savings deposits and time deposits with maturities of 30 to
89 days, the Board has increased the ceiling rate of interest that member
banks may pay on such time deposits by 1/4 per cent to 5-1/4 per cent,
the current savings ceiling rate.
The new ceiling rate may be paid
only on deposits made or renewed on or after the effective date of the
amendment.
Effective July 1, member banks were authorized to offer a
new category of time deposit with a maturity of 4 years or more at a
ceiling rate tied to the 4-year yield for U. S. Treasury securities.

- 2 -

The ceiling rate for new deposits in this category is established monthly;
however, the rate paid on outstanding deposits is not affected by the
monthly changes in the ceiling rate for new deposits.
The Board is
aware that some member banks permit customers to deposit additional
funds into previously established time deposits of this category.
While
under current Board policy a member bank may continue to pay the contractually
agreed upon rate of interest on an existing 4-year deposit, any deposit
to an existing 4-year time deposit received by the member bank subsequent
to a change in the ceiling rate of interest may not exceed the ceiling
rate in effect at the time the additional deposit is made.
Accordingly,
the Board has amended section 217.3(a) of Regulation Q to clarify that
additional deposits made to any existing time deposit account are subject
to the rate ceiling in effect at the time the additional deposits are
made.
The Board's actions were taken at this time after consultation
with the other Federal financial institution regulatory agencies.
In
order to facilitate the achievement of the previously mentioned objectives
as rapidly as possible, the Board finds that application of the notice
and public participation provisions of 5 U.S.C. § 553 to these actions
would be contrary to the public interest and that good cause exists
for making these amendments effective in less than thirty days.
Therefore, effective August 1, 1979, pursuant to its authority
under section 19 (j) of the Federal Reserve Act (12 U.S.C. § 371b) to
prescribe rules governing the payment of interest by member banks on
time deposits, the Board amends Regulation Q (12 C F R 217) as follows:
§ 217.3— INTEREST ON TIME AND SAVINGS DEPOSITS
(a)
Maximum r a t e . * * * The maximum rate of interest that
ma y be paid by a member bank on an additional
deposit to any existing
time deposit shall not exceed the maximum rate that may be paid in ac
cordance with § 217.7 on the date the additional deposit is made.
*

§ 217.7— MAXIMUM RATES OF INTEREST PAYABLE BY MEMBER BANKS ON TIME AND
SAVINGS DEPOSITS
*

(b)
Fixed ceiling time deposits of
less than $100,000. Except
as provided in paragraphs (a), (d), (e), (f),
and (g), no member bank
shall pay interest on any time deposit at a rate in excess of the applicable
rate under the following schedule:

3 -

The Board's action was taken after consultation with the Federal
financial institution regulatory agencies.
In order to facilitate the
administration of currently prescribed deposit interest rate limitations,
the Board finds that good cause exists for making the amendments effective
in less than thirty days.
Pursuant to its authority under sections 19(a), (i), and (j)
of the Federal Reserve Act (12 U.S.C. §§ 461, 371a and 371b), the Board
amends Regulation Q (12 C FR 217), effective August 1, 1979, as follows:
§ 217.1— DEFINITIONS
*

(f) Deposits as including certain promissory notes and other
ob l i g a t i o n s . For the purposes of this Part, the term "deposits" also
includes any member bank's liability on any promissory note, acknowledg
ment of advance, due bill, or similar obligation (written or oral) that
is issued or undertaken by a member bank principally as a means of ob
taining funds to be used in its banking business, except any such obli
gation that:
*

is issued in denominations of $100,000 or more; or
is issued in denominations of less than $100,000,
matures in less than 9^ days and is not automatically
renewable or extended;— ^*

5a/
A
member bank with
such obligations issued
less than $100,000 with maturities of 90 days or more
issue such obligations until August 1, 1982, without
subparagraph.
However, the aggregate amount of such
on a member bank's books may not exceed the total of
outstanding on its books on August 1, 1979.
*

in denominations of
may continue to
regard to this
obligations outstanding
such obligations

By order of the Board of Governors of the Federal Reserve
System, July 30, 1979.
(signed)
Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]

- 3 -

Maturitv

Maximum per cent

30 days or more but less
than 90 days

5-1/4

90 days or more but less
than 1 year

5-1/2

1 year or more but less
than 30 months

30 months or more but
less than 4 years

6-1/2

4 years or more but
less than 6 years

7-1/4

6 years or more but less
than 8 years

7-1/2

8 years or more

7-3/4

By order of the Board of Governors of the Federal Reserve
System, July 30, 1979.
(signed)

Theodore E. Allison

Theodore E. Allison
Secretary of the Board

[SEAL]

B O A R D O F G O V E R N O R S O F T H E F E D E R A L RESE R V E SYSTEM

SUPPLEMENT TO REGULATION Q
As amended effective August 1, 1979
SECTION 217.7— M AXIM UM RATES OF
IN TEREST PA YA BLE BY M EM BER BANKS
ON TIM E AND SAVINGS DEPOSITS

5 per cent on any savings deposit that is subject to
negotiable orders of withdrawal, the issuance of
which is authorized by Federal law.

Pursuant to the provisions of Section 19 of the
Federal Reserve Act and § 217.3 of this Part, the
Board of Governors of the Federal Reserve Sys
tem hereby prescribes the following maximum
rates 1 of interest per annum payable by member
banks of the Federal Reserve System on time and
savings deposits:

(d) Governmental unit time deposits of less
than $100,000. Except as provided in paragraphs

(a) Time deposits of $100,000 or more. There
is no maximum rate of interest presently pre
scribed on any time deposit of S 100.000 or more.
(b) Fixed ceiling time deposits of less than
$100,000. Except as provided in paragraphs (a),
(d), (e). (f), and (g), no member bank shall pay
interest on any time deposit at a rate in excess
of the applicable rate under the following schedule:
Maturity

M axim um p er cent

30 days or more but less
than 90 days

5'/4

90 days or more but less
than 1 year

5Vi

1 year or more but less
than 30 months

30 months or more but
less than 4 years

6 V2

(a), (f). and (g), no member bank shall pay interest
on any time deposit which consists of funds de
posited to the credit of. or in which the entire
beneficial interest is held by, the United States, any
State of the United States, or any county, munici
pality or political subdivision thereof, the District
of Columbia, the Commonwealth of Puerto Rico,
the Virgin Islands. American Samoa, Guam, or
political subdivision thereof, at a rate in excess
of 8 per cent.(e) Individual Retirement Account and Keogh
(H.R. 10) Plan deposits of less than $100,000. E x
cept as provided in paragraphs (a) and (g). a
member bank may pay interest on any time de
posit with a maturity of three years or more that
consists of funds deposited to the credit of, or in
which the entire beneficial interest is held by. an
individual pursuant to an Individual Retirement
Account agreement or Keogh (H.R. 10) Plan estab
lished pursuant to 26 U.S.C. (I.R.C. 1954) §§ 408,
401, at a rate not in excess of 8 per cent.2
(f) 26-week money market time deposits of less
than $100,000. Except as provided in paragraph (a),

a member bank may pay interest on any non
negotiable time deposit of SI0.000 or more, with a
maturity
of 26 weeks, at a rate not to exceed the
6 years or more but less
rate
established
(auction average on a discount
than 8 years
IV 2
basis) for United States Treasury bills with ma
8 years or more
7%
turities of 26 weeks issued on or immediately prior
(c)
Savings deposits. No member bank shall pay to the date of deposit. Rounding such rate to the
next higher rate is not permitted. A member bank
interest at a rate in excess of 5 lA per cent on any
savings deposit. Provided, however, that no mem may not compound interest during the term of this
deposit. A member bank may offer this category
ber bank shall pay interest at a rate in excess of
of time deposit to all depositors.
4 years or more but
less than 6 years

71/4

1
T h e lim ita tio n on rates o f interest p aya b le by
m em b er banks o f the F e d e ra l R e s e rv e System on tim e
an d savings deposits, as prescribed herein, are not
a p p lic a b le to a n y d ep osit w h ich is p a y a b le o n ly at
an office o f a m em b er bank lo ca te d outside the States
o f the U n ited States and the D istrict o f C o lu m b ia .

2 T h e c eilin g rate on this c a te g o ry is the highest
fixed c eilin g rate that m ay b e p a id on tim e deposits
under S I 00,000 b y an y F e d e ra lly insured com m ercia l
bank, m utual savings bank, o r savings and lo an asso
ciation.

AUGUST 1979

(g)
Time deposits of less than $100,000 with States Treasury securities as determined and an
maturities of four years or more. Except as pro nounced by the United States Department of the
vided in paragraphs (a) and (b), a member bank Treasury three business days prior to the first day
may pay interest on any nonnegotiable time de of such month. The average 4-year yield will be
posit with a maturity of four years or more that is rounded by the United States Department of
issued on or after the first day of every month Treasury to the nearest 5 basis points. A member
at a rate not to exceed one and one-quarter per bank may offer this category of time deposit to
cent below the average 4-year yield for United all depositors.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

INTEREST ON DEPOSITS
AMENDMENTS TO REGULATION Q f
As amended effective August 1,1979

Effective March 15.
amended as follows:

1979. section 217.6 is

SECTION 217.6—ADVERTISING OF
IN TEREST ON DEPOSITS
*

(j) Any advertisement, announcement, or solici
tation relating to interest paid by a member bank
on a time deposit of $10,000 or more with a
maturity of 26 weeks at a rate not in excess of
the rate established (auction average on a discount
basis) for United States Treasury bills with matu
rities of six months shall include a clear and con
spicuous notice that Federal regulations prohibit
the compounding of interest during the term of
the deposit.
Effective July I. 1979. sections 217.4 and 217.6
are amended as set forth below:
SECTION 217.4— PAYMENT OF TIM E
DEPOSITS BEFO RE M ATURITY
*

(d)
Penalty for early withdrawals. Where a time
deposit with an original maturity of one year or
less, or any portion thereof, is paid before matu
rity. a depositor shall forfeit at least three months
of interest on the amount withdrawn at the rate
being paid on the deposit. If the amount withdrawn
has remained on deposit for less than three
months, all interest shall be forfeited. Where a
time deposit with an original maturity of more
than one year, or any portion thereof, is paid be
fore maturity, a depositor shall forfeit at least six
months interest on the amount withdrawn at the
rate being paid on the deposit. If the amount has
remained on deposit for less than six months, all

interest shall be forfeited.11 Where necessary to
comply with the requirements of this paragraph,
any interest already paid to or for the account
of the depositor shall be deducted from the
amount requested to be withdrawn. Any amend
ment of a time deposit contract that results in an
increase in the rate of interest paid or in a reduc
tion in the maturity of the deposit constitutes a
payment of the time deposit before maturity. A
time deposit may be paid before maturity without
a forfeiture of interest as prescribed by this para
graph in the following circumstances: * * *
(e) Disclosure of early withdrawal penalty. At
the time a depositor enters into a time deposit
contract with a member bank, the bank shall pro
vide a written statement of the effect of the penalty
prescribed in paragraph (d) of this section, which
shall (1) state clearly that the customer has con
tracted to keep his funds on deposit for the stated
maturity, and (2) describe fully and clearly how
such penalty provisions apply to time deposits in
such bank, in the event the bank, notwithstanding
11 The provisions of this paragraph apply to all
time deposit contracts entered into on or after July 1,
1979, and to all existing time deposit contracts that
are extended or renewed (whether by automatic re
newal or otherwise) on or after such date. All con
tracts not subject to the provisions of this paragraph
shall be subject to the restrictions of §217.4(d) in
effect prior to July 1. 1979, which provided that
where a time deposit, or any portion thereof, is paid
before maturity, a member bank may pay interest on
the amount withdrawn at a rate not to exceed that
prescribed in §217.7 for a savings deposit and the
depositor shall forfeit three months of interest pay
able at such rate. If. however, the amount withdrawn
has remained on deposit for three months or less, all
interest shall be forfeited.

TFor this Regulation to be complete as amended effective August 1, 1979, retain:
1) Printed Regulation pamphlet as amended December 6, 1978;
2) Supplement slip sheet dated August 1, 1979; and
3) This slip sheet. (D estroy Supplement effective June 1, 1978; Amendment effective
March 15, 1979; and Am endment effective July 1, 1979.)

the contract provisions, permits payment before
maturity. Such statements shall be expressly called
to the attention of the customer.
*
*
*
*
*
SECTION 217.6— ADVERTISING OF
IN TEREST ON DEPOSITS
*

(e) Penalty for early withdrawals. Any adver
tisement, announcement, or solicitation relating to
interest paid by a member bank on time deposits
shall include clear and conspicuous notice that the
bank is prohibited from allowing payment of a
time deposit before maturity unless substantial
interest is forfeited. Such notice may state that,
“Substantial interest penalty is required for early
withdrawal.”
*
*
*
*
*
Effective August 1, 1979, sections 217.1, 217.3,
and 217.4 are amended as follows:
SECTION 217.1—DEFINITIONS
*

(f) Deposits as including certain promissory
notes and other obligations. For the purposes of
this Part, the term “deposits” also includes any
member bank's liability on any promissory note,
acknowledgment of advance, due bill, or similar
obligation (written or oral) that is issued or under
taken by a member bank principally as a means of
obtaining funds to be used in its banking business,
except any such obligation that:
*

(2) Evidences an indebtedness arising from a
transfer of direct obligations of, or obligations
that are fully guaranteed as to principal and inter
est by, the United States or any agency thereof
that the bank is obligated to repurchase, and
(a) is issued in denominations of $100,000 or
more; or
(b) is issued in denominations of less than
$100,000, matures in less than 90 days and is not
automatically renewable or extended; 3a
*
*
*
*
*
r,u A m e m b er ban k w ith such o b lig a tio n s issued in
d en om in ation s o f less than S 100.000 w ith m aturities
o f 90 days o r m o re m a y con tin u e to issue such o b lig a
tions until A u gu s t 1, 1982, w ith ou t regard to this sub
p aragraph . H o w e v e r , th e a g gre ga te am ou n t o f such
o b lig a tio n s outstanding on a m e m b er ban k's b ooks
m a y not exceed the to tal o f such o b lig a tio n s outstand
in g on its b ook s on A u gu st 1, 1979.

SECTION 217.3—IN TEREST ON TIM E
AND SAVINGS DEPOSITS
(a) Maximum rate. * * * The maximum rate
of interest that may be paid by a member bank on
an additional deposit to any existing time deposit
shall not exceed the maximum rate that may be
paid in accordance with § 217.7 on the date the
additional deposit is made.
*

SECTION 217.4— PAYMENT OF TIM E
DEPOSITS BEFORE M ATURITY
*

(d)
Penalty for early withdrawals. Where a time
deposit with an original maturity or required no
tice period of one year or less, or any portion
thereof, is paid before maturity or before the
expiration of the required notice period, a deposi
tor shall forfeit at least three months of interest
on the amount withdrawn at the rate being paid
on the deposit. If the amount withdrawn has re
mained on deposit for less than three months, all
interest on the amount withdrawn shall be for
feited. Where a time deposit with an original
maturity or required notice period of more than
one year, or any portion thereof, is paid before
maturity or before the expiration of the required
notice period, a depositor shall forfeit at least six
months interest on the amount withdrawn at the
rate being paid on the deposit. If the amount has
remained on deposit for less than six months, all
interest on the amount withdrawn shall be for
feited.11 Where necessary to comply with the re
quirements of this paragraph, any interest already
paid to or for the account of the depositor shall
be deducted from the amount requested to be
withdrawn. Any amendment of a time deposit
11
T h e p ro visio n s o f this p ara grap h a p p ly to a ll
tim e d ep osit con tracts en tered in to on o r a fte r July 1,
1979, and to a ll existin g tim e d ep o sit contracts that
are exten d ed o r ren ew ed (w h e th e r b y au to m a tic re
n ew a l o r o th e rw is e ) on o r a fte r such date. T h e p ro
vision s o f this p aragrap h also m a y b e a p p lied , w ith
the consent o f the d ep o sitor, to a ll o th er tim e d ep osit
contracts entered in to b e fo re July 1, 1979. A l l c o n
tracts n ot subject to th e p rovision s o f this paragraph
shall be subject to the restrictions o f § 2 17.4(d) in
e ffec t p rio r to July 1, 1979, w h ich p ro v id e d that w here
a tim e deposit, o r an y p o rtio n th e re o f, is p aid b e fo re
m aturity, a m em b er ban k m a y p a y interest on the
am ou n t w ith d ra w n at a rate n ot to exceed that
p rescribed in §217.7 f o r a savings d ep o sit and the
d ep o sitor shall fo r fe it three m onths o f interest p ay
ab le at such rate. If, h o w e ve r, the am ou n t w ith d ra w n
has rem ain ed on d ep osit f o r th ree m onths o r less,
a ll interest shall b e fo r fe ite d .

contract that results in an increase in the rate of
interest paid or in a reduction in the maturity of
the deposit constitutes a payment of the time
deposit before maturity. A time deposit may be
paid before maturity without a forfeiture of in
terest as prescribed by this paragraph in the fol
lowing circumstances:

A time deposit must be paid before maturity
without a forfeiture of interest as prescribed by
this paragraph in the following circumstances:

(1) Where a member bank pays all or a portion
of a time deposit representing funds contributed
to an Individual Retirement Account or a Keogh
(H.R. 10) Plan established pursuant to 26 U.S.C.
(IRC 1954) §§ 408, 401 when the individual for
whose benefit the account is maintained attains
age 59‘/2 or is disabled (as defined in 26 U.S.C.
(I.R.C. 1954) § 72(m)(7)) or thereafter; or

(2) Where a member bank pays all or a portion
of a time deposit when the owner 1la of the time
deposit is determined to be legally incompetent
by a court or other administrative body of com
petent jurisdiction.* * *

(2) Where a member bank pays that portion of
a time deposit on which Federal deposit insurance
has been lost as the result of the merger of two
or more Federally insured banks in which the
depositor previously maintained separate time de
posits. for a period of one year from the date of
the merger.

(1) Where a member bank pays all or a por
tion of a time deposit upon the death of any
ownerlla of the time deposit funds; or

lla For the purposes of this provision, an “owner”
of time deposit funds is any individual who at the
time of his or her death or determination of incom
petence has full legal and beneficial title to all or a
portion of such funds or, at the time of his or her
death or determination of incompetence, has bene
ficial title to all or a portion of such funds and full
power of disposition and alienation with respect
thereto.

Full text of District Notices (Federal Reserve Bank of Dallas) : Amendments to Regulation Q -- Interest on Deposits, Circular No. 79-127

FRASER