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federal

Reserve Ba n k o f D allas

DALLAS, TEXAS

75222
Circular No. 77-52
April 28, 1977

R E G U LA TIO N Q — IN T E R E S T ON DEPOSITS

T O A L L MEMBER BANKS
A N D O TH E R S CO NCERNED IN TH E
ELE VE NTH FE D E R A L RESERVE D IS T R IC T :
T h e Board of G o v e rn o rs of the F e d e ra l R e s e rv e System has adopted an
am endm ent to its R e g ulation Q , " In te r e s t on D e p o s its ," to e stab lis h a new c a te g o ry
of tim e deposits for In d iv id u a l R e tirem e n t Accounts and Keogh p la n s . T h e a m end ­
ment becomes e ffe ctive J u ly 6, 1977.
In announcing th is action the Board issued the fo llo w in g statem ent to the
press:
T h e Board of G o v e rn o rs of the F e d e ra l R e s e rv e System announced
today th a t it is e s ta b lis h in g a new c a te g o ry of tim e de p o s it accounts to
b e n e fit in d iv id u a ls s av ing fo r t h e i r r e tir e m e n t.
T h e B o ard's action am ended R e gu latio n Q (In te r e s t on Deposits) to
c re a te a c ateg o ry of deposits u n d e r w h ic h m ember banks could pay
m axim um in te r e s t rates fo r c o n s u m e r-ty p e tim e deposits to s a v e rs in
In d iv id u a l R e tire m e n t A c c o u n ts !/ and Keogh P l a n ! / R e tire m e n t A c c o u n ts .
T h e main fe a tu res of th e new class of r e tir e m e n t s av in g s deposits a re :
—

It w i l l become e ffe c tiv e a fte r 90 days (J u ly 6 , 1977) .

V T h e E m ployee R e tire m e n t Income S e c u r ity A c t of 1974 (E R IS A ) p e rm its i n d i v i d ­
uals not c o ve re d b y a r e tir e m e n t p lan to d eposit in In d iv id u a l R e tire m e n t Accounts
(IR A s ) for r e tir e m e n t p u r p o s e s , t a x - d e f e r r e d c o n trib u tio n s up to $1, 500 a y e a r ,
or 15 p e r c e n t of g ro ss incom e, w h ic h e v e r is less.
2 / Keogh ( H . R . 10) p la n accounts w e r e a u th o r iz e d u n d e r the S e lf-E m p lo y e d I n d i ­
v id u a ls T a x R e tire m e n t A c t of 1962. T h e A c t c u r r e n t ly p e rm its a s e lf-e m p lo y e d
p e rson to deposit in a Keogh p la n account t a x - d e f e r r e d c o n trib u tio n s u p to $ 7,500
a y e a r , o r 15 p e rc e n t of g ros s income, w h ic h e v e r is less.

Banks and others are encouraged to use the follo w in g to ll-fr e e incoming WATS numbers in contact g th is Bank:
1-8 0 0 -49 2 -4 40 3 (intra s ta te ) and 1 -8 0 0 -52 7 -4 97 0 (in te rs ta te ). For c a lls placed lo c a lly , p lease 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 -

—

M em ber banks may pay in te re s t on IRA and Keogh plan time
deposits at a rate of in te re s t equal to the h ig h e s t rate p e rm is ­
s ib le u n d e r R e gu lation Q , for time deposits of any m a tu rity or
denom ination u n d e r $ 1 0 0 ,0 0 0 , by a F e d e r a lly in s u re d commer­
cial b a n k , mutual s av in g s b a n k or savings and loan association.
T h is is p r e s e n tly 7 .7 5 p e r c e n t.

—

No minimum denom ination w ould be r e q u ir e d for this class of
d e p o s it.

—

A m a tu r ity of th re e y e a r s o r more w o uld be r e q u i r e d .

—

H o w e v e r , as w ith o th e r types of IRA or Keogh accounts, w i t h ­
d r a w a ls may be made before m a tu r ity w ith o u t p e n a lty for e a r ly
w ith d r a w a l if the d e p o s ito r reaches the age of 59?, o r is d is a b le d .

—

M em ber b a nks may m odify e x is tin g IRA o r Keogh p la n agreem ents
to p e r m it re tire m e n t s a v e rs to take a d v a n ta g e of this new r u le .

R e tire m e n t s a v e rs may elect to use o th e r types of tim e deposits for
t h e i r IRA o r Keogh p la n fu n d s , such as o r d i n a r y s av in g s accounts or
time deposits w ith m a tu ritie s of less than th re e y e a r s . In such cases,
the accounts w i ll be s u bject to the e x is tin g c e ilin g rates of in te re s t p r e ­
s c rib e d by R egulation Q .
In ta k in g its action the B oard noted a C o n g re s sio n a l re p o rt in d ic a t­
ing th a t about h a lf of a ll em ployees in p r iv a t e em plo ym en t a re not
c o ve re d b y r e tir e m e n t p la n s .
T h e Board estim ated th a t fo r r e tir e m e n t s a v e rs c o n trib u tin g the
maximum y e a r l y amount u n d e r a Keogh p lan at a m ember b a n k for 30
y e a r s , the h ig h e r in te r e s t a llo w a b le u n d e r the new c ateg o ry could in ­
c re a s e re tir e m e n t s av in g s by up to $ 50,000 and that the in crease for
p a rtic ip a n ts u n d e r IRAs could be up to $ 1 0 ,0 0 0 . A t p r e s e n t, R e g u la ­
tion Q p e rm its t h r i f t in s titu tio n s to pay a q u a r t e r of one p e rc e n t more
in te re s t on such deposits than com m ercial b a nks may p a y .
"Such a p e n a lty fo r choosing deposits at a p a r t i c u l a r type of in s titu ­
tion is c le a r ly inconsistent w ith the o bjectives of m a x im iz in g the total
amount of e a rn in g s on re tire m e n t s av ings that the C ongress sought to
e n co u ra g e th ro u g h e s tab lis h m en t of IRA and Keogh p ro g ra m s" the B o a rd 's
announcem ent s a id .

T h e B o a rd 's announcem ent noted that issues r e la tin g to th e creation
o f a new dep osit c ateg o ry fo r IRA o r Keogh funds have been the subject
of sub stan tial p u b lic comment o v e r the cou rse of n e a r ly two y e a r s .
In June 1975 the Board re quested p u b lic comment on a n u m b e r of
questions re la tin g to IR A s , in c lu d in g the questions w h e th e r the e x i s t ­
ing schedule of in te re s t ra te c e ilin g s that can be paid on IRA deposits
should be in creased and w h e th e r m em ber b a n ks should be p e rm itte d to
pay in te re s t on IRA deposits at rates equal to those that may be paid b y
s av in g s and loan associations and mutual s av in g s b a n k s . In J u ly 1976,
the Board announced th a t it was of the v iew that IRA p a rtic ip a n ts should
be p e rm itte d to obtain the h ig h e s t rate of in te re s t p e rm is s ib le on t h e i r
re tir e m e n t s av ings re g a rd le s s of w h e r e the funds a r e m a in ta in e d . It
was a n tic ip a te d that f u r t h e r action b y the B oard to p e r m it m em ber banks
to o ffer IRAs on a f u l l y co m p etitive basis w o uld be a p p r o p r ia t e in e a r ly
1977. " A c c o r d in g ly , " the Board s a id , "th e p u b lic has had am ple o p p o r­
tu n it y to comment on the issues r e le v a n t to the B o a rd 's action e s ta b lis h ­
ing a special c ateg o ry of deposit fo r IRAs and K e o g h s ."
By adopting a final r u le at this tim e , the Board s a id , p u b lic
u n c e r ta in ty about IRA and Keogh accounts w i l l be rem oved and r e t i r e ­
ment s a v e rs may b e g in im m ed iately to p la n t h e i r re tire m e n t p ro g ra m s .
T h e 9 0 -d a y d e fe r r a l of the e ffective date g iv e s m ember b a nks tim e to
make o p eratio nal and o th e r changes and w i l l g iv e them o p p o rtu n ity to
compete fo r IR A and Keogh deposits on an equal b a s is .
T h e B o a rd 's announcem ent pointed out that p r e f e r r e d tax tre atm en t
was g iv e n to IRAs to e n co u ra g e s av ing s for r e tir e m e n t, and not to e x ­
tend a c om petitive ad va n ta g e fo r a p a r t i c u l a r class of fin a n c ia l in s titu ­
tion .
A s u r v e y conducted by the Board in d ica te d th a t as of D ecem ber 31,
1976, com m ercial banks had obtained o n ly 35 p e rc e n t of the IRA m a rk e t,
w h ile a ccounting for 47 p e rc e n t o f the total household tim e and savings
dep osit m a rk e t (see enclosed ta b le ) .
T h e B oard's action was ta k en at th is time because of a n u m b e r of
o th e r reasons that it found c o m p e llin g , in c lu d in g :
—

T h e r e is s till a la r g e n u m b e r o f people e lig ib le to e stab lis h IRA
o r Keogh accounts w ho ha ve not done so, due p a r t l y , the Board
b e lie v e s , to lack of a d v e r tis in g o f such accounts b y com m ercial
b a nks d u e to t h e i r non com petitive p o s itio n .

I
^V

I

-

a

-

—

M a k in g re tire m e n t s av in g s accounts of equal v a lu e at a ll depo sitories
e a r l y in the y e a r may avoid s u b s ta n tia lly d im in is h in g the n u m b e r of
people who s ta rt re tire m e n t s av ings this y e a r .

—

Banks and o th e r fin a n c ia l in s titu tio n s o ffe r in g IR A and Keogh plan
accounts w ill r e q u i r e a sub stan tial amount of lead tim e to d e ve lo p
m a rk e tin g p lans that can be p u t into effect s u ffic ie n tly in a d va n c e of
y e a r - e n d to be u s e f u l .

By p re v io u s action the Board has made IRA and Keogh p la n deposits
s u bject to the same ru les u n d e r R e g ulation Q .

For the convenience of m em ber banks and oth ers th a t m a in tain R e g u la ­
tions B in d e r s , we ha ve updated th e s up plem e nt to R eg ulation Q . M em ber banks
and o thers should file the s u p p lem e n t, w h ic h is p r in t e d on the enclosed s lip
s hee t, in t h e ir b i n d e r s . A n y questions c o n ce rn in g the updated s upplem ent should
be d ir e c te d to R ic h a r d B . West or Eugene C o y , J r . , of our R egulations D e p a rtm e n t,
E x t. 6171.
A d d itio n a l copies of the updated su pplem ent w ill be fu r n is h e d upon r e ­
quest to the S e c r e ta r y 's O ffice of this B a n k , E x t. 6267.
S in c e r e ly y o u r s ,
R o b e rt H . B o y k in
F ir s t V ic e P re s id e n t

E nclosures

INDIVIDUAL RETIREMENT ACCOUNTS AND KEOGH ACCOUNTS AT
FEDERALLY INSURED DEPOSITORY INSTITUTIONS
March 31 and December 31, 1976

Amount
($ Mils.)
Mar. 31
Dec. 31

Per Cent
Distribution
Mar. 31
Dec. 31

Per Cent
Distribution of
Total House­
hold Holdings
of Time
and Savings
Deposits as of
Dec. 31, 1976 U

(Individual Retirement Accounts)
Commercial Banks
Mutual Savings Banks
Savings and Loan
Associations
Total

469
244

1,067
504

34
18

35
16

47
15

672

1,480 p/

48

49 £/

38

100

100 £/

100

1,385

3,051

(Keogh Account s)
Commercial Banks
Mutual Savings Bank
Savings and Loan
Associations
Total

150
322

n.a.
n.a.

15
33

n.a.
n.a.

47
15

512

n.a.

52

n.a.

38

984

n.a.

100

n.a.

100

1/ Flov-of-Funds estimates.
£/
Preliminary
n.a. - Not available.

NOTE:

Data for March 31 are based on universe reports.
Data for
December 31 are estimates from a sample survey of commercial
and mutual savings banks and partial reports from a universe
survey of savings and loan associations.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SUPPLEMENT TO REGULATION Q
Effective July 6,1977

S EC T IO N 217.7 — M A X IM U M R A T E S O F IN T E R E S T P A Y A B L E
BY M E M B E R BANKS O N T IM E A N D S A V IN G S D EPOSITS

P ursuant to the provisions o f section 19 of the
Federal Reserve A ct and §217.3 hereof, the
Board of G overnors of the Federal Reserve Sys­
tem hereby prescribes the following maximum
rates1 of interest p er annum payable by m ember
banks o f the Federal Reserve System on time and
savings deposits:

(c) Savings deposits. N o mem ber bank shall
pay interest at a rate in excess of 5 percent on
any savings deposit including savings deposits that
are subject to negotiable orders of withdrawal, the
issuance of which is authorized by F ederal law.

(a) Time deposits of $100,000 or more. There
is no maxim um rate of interest presently prescribed
on any time deposit of $100,000 or more.

(1)
Except as provided in paragraph (a), no
mem ber bank shall pay interest on any time de­
posit which consists of funds deposited to the
credit of, or in which the entire beneficial interest
is held by, the United States, any State of the
U nited States, or any county, municipality, or
political subdivision thereof, the District o f C o ­
lumbia, the Com m onw ealth of Puerto Rico, the
Virgin Islands, A merican Samoa, G uam , o r polit­
ical subdivision thereof, at a rate in excess of the
highest of any of the permissible rates th at can be
paid on time deposits under $100,000 by any
Federally insured commercial bank, mutual sav­
ings bank, o r savings and loan institution.3

(b) Time deposits of less than $100,000.
(1) Except as provided in paragraphs (a), (d),
and (e), and subparts (2) and (3) of this paragraph,
no m em ber bank shall pay interest on any time de­
posit at a rate in excess o f the applicable rate
under the following schedule:
M aturity
30 days or more but less
than 90 days

M a xim u m percent
5

90 days or more but less
than 1 year

5V4

1 year or more but less
th a n 30 months

6

30 months or more

6

V2

(2) M em ber banks may pay interest on any
time deposit of $1,000 o r more, with a maturity
of four years or more, at a rate not to exceed 714
percent.2
(3) Investment Certificates — M em ber banks
may pay interest on any time deposit of $ 1,000 or
more, with a maturity of six years or more, at a
rate n o t to exceed IV 2 percent.2

(d) Governm ental unit tim e deposits of less than
$ 100,000.

(e) Individual retirem ent account and Keogh
(H.R. 10) plan deposits of less than $100,000.
Except as provided in paragraph (a), a mem ber
bank may pay interest on any time deposit with a
maturity of three years or more th a t consists of
funds deposited to the credit of, or in w hich the
entire beneficial interest is held by, an individual
pursuant to an Individual R etirem ent A ccount
agreement or Keogh (H.R. 10) plan established
pursuant to 26 U.S.C. (I.R.C. 1954) sections 408,
401, at a rate n o t in excess of the highest of any
of the permissible rates th a t can be paid on time
deposits u n d er $100,000 by any Federally insured
commercial bank, m utual savings bank, o r savings
and loan association.3

1 The limitations o n rates o f interest payable by member banks o f the Federal Reserve System on time and
savings deposits, as prescribed herein, are not applicable to any deposit which is payable only at an office o f a
member bank located outside the States o f the United States and the District of Columbia.
2 The $1,000 m inimum denomination requirement does not apply to time deposits representing funds con­
tributed to an Individual Retirement A ccount or K eogh (H .R. 10) plan established pursuant to 26 U.S.C. (I.R.C.
1954) §§408, 401.
3 The highest permissible rate is currently 7.75 perce nt per annum (12 CFR 329.7 and 12 C F R 526.5).