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F e d e r a l Re s e r v e Ba n k o f D a lla s

DALLAS, TEXAS

75222
C irc u la r No. 76-43
March 26, 1976

REGULATION Q - INTEREST ON DEPOSITS
R e p rin t of Regulation Q and Amendment
Concerning Negotiable O rd ers of W ithdraw al (NOW)

TO A L L MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE D IS T R IC T:
T h e Board of Governors of the Federal R eserve System has rep rin te d
its Regulation Q— Interest on Deposits— incorporating amendments issued
through December 4, 1975.
T h is booklet, w hich is enclosed, should be filed in you r Regulations
B in d e r, and the corresponding booklet, as amended effective Jan uary 1, 1971,
and subsequent amendments should be removed and destroyed. Please retain
the supplement to Regulation Q effective December 4 , 1975, as it does not
appear in the revised booklet.
On March 1, 1976, the Board of Governors amended Regulation Q to
perm it member commercial banks throughout New England to offer NOW
accounts to th e ir customers.
T h e action was taken in the light of legislation effective F eb ru ary 27,
1976, authorizing NOW accounts in M aine, Connecticut, Rhode Island, and
V erm ont. Congress had p re v io u s ly authorized NOW accounts in Massachusetts
and New Hampshire on an experim ental basis. T h e amendment extends the
existing provisions of Regulation Q re g ard in g the offering of NOW accounts to
member banks in those states in which Federal law perm its such accounts.
Please note that member commercial banks located in the Eleventh
Federal Reserve D is tric t a re not authorized to offer NOW accounts.

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

- 2 -

T h e amendment to Regulation Q Is enclosed and should be file d In
y o u r Regulations B in d e r. If you have an y questions reg a rd in g Regulation Q ,
please contact R ichard West of our Regulations Departm ent a t (214) 651-6169.
Additional copies of Regulation Q a n d /o r this amendment w ill be
furnished upon request to the S e c reta ry 's Office o f this Bank.
S in ce re ly y o u rs ,
T . W . Plant
F irs t V ic e President
Enclosures (2)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

INTEREST ON DEPOSITS
AMENDMENT TO REGULATION Qf

E f f e c t i v e M a r c h 1, 1 9 7 6 , § 2 1 7 .1 ( e ) ( 3 ) ,
§217.5(c)(3), and §217.6(i) are am ended to read
as follows:
§ 217.1 — D E F IN IT IO N S
*

*

*

*

*

H S £
S &

*

(3)
In those states w here banks are perm itted
to offer deposits subject to negotiable orders of
w ithdraw al, such deposits m ay be m aintained if
such deposits consist o f funds deposited to the
credit of or in w hich the entire beneficial interest
is held by one o r m ore individuals, or a corpora­
tion, association, or other organization operated
prim arily for religious, philanthropic, charitable,
educational, fraternal, o r other similar purposes,
and n o t operated for profit. Deposits in w hich any
beneficial interest is held by a corporation, part­
nership, association, o r other organization oper­
ated fo r profit or n o t operated prim arily for
religious, philanthropic, charitable, educational,
fraternal, o r other similar purposes m ay not be
classified as deposits subject to negotiable orders
of withdrawal.
*

*

*

*

sc
f

§ 217.5 — W IT H D R A W A L O F SAV ING S
D EPO SITS
sfc

* * * * *
(3)
T he provisions of this paragraph do not
apply to deposits subject to negotiable orders of
w ithdraw al th a t are authorized by Federal law.
* *

(e) Savings deposits.

5
{
!

(c) M anner o f paym ent o f savings d eposits.

=
{:

sje

sj;

*

*

*

§ 217.6 — A D V E R T IS IN G O F IN T E R E S T O N
D EPO SITS
* *

*

*

*

(i)
N eg o tiab le orders o f w ithdraw al. In addition
to com pliance w ith th e other paragraphs of this
section, m em ber banks offering accounts subject
to negotiable orders of withdraw al, to the extent
practicable, shall lim it every advertisement, an­
nouncem ent, o r solicitation m ade in any news­
paper, magazine, radio, television, o r other m edia
to such facilities directed tow ard residents o f the
States in w hich F ederal law authorizes the issuance
of such accounts. All other advertisements, an­
nouncem ents, and solicitations of such accounts,
including direct mailing, circulars, and notices,
w hether w ritten or oral, to the extent practicable,
shall be directed only to persons residing o r em ­
ployed in the States in w hich F ederal law author­
izes the issuance of accounts subject to negotiable
orders of withdraw al and to persons w ho are
customers o f m em ber banks in those States on the
effective date o f this am endm ent.

t For this Regulation to be complete as amended effective March 1, 1976, retain:
1) Printed Regulation pamphlet as amended effective December 4, 1975;
2) Supplement effective December 4, 1975; and
3) This slip sheet.

BO A R D OF G OVERNORS
o i the
FE D E R A L R ESERVE SYSTEM

INTEREST ON DEPOSITS

R EG U LA TIO N Q
(12 CFR 217)
As amended effective December 4, 1975

Any inquiry relating to this regulation should be addressed to the Federal
Reserve Bank of the Federal Reserve District in which the inquiry arises.

DECEMBER 1975

CONTENTS

Page

Page
S e c . 2 1 7 .0 — Sc o p e

..................................

3

...........................................

3

(a ) D em and d e p o s its ................................
(b) T im e deposits .....................................
(c ) T im e certificates of d e p o s i t ..........
( d ) T im e deposits, open account . . . .
(e ) Savings deposits ................................
( f ) Deposits as including certain
promissory n o t e s .............................
(g) Multiple maturity time deposit . . .

3
3
3
3
4

of

Pa

r t

S e c . 217.4 — P a y m e n t o f T im e D e p o s i t s
B e fo re

S e c . 2 1 7 .1 — D

S e c . 2 1 7 .2 — D

(a )
(b )

e f in it io n s

..........................

5

Interest prohibited ...........................
M eaning of in te r e s t...........................

5
5

em and

Se c . 2 1 7 .3 — I n t e r e s t
S a v in g s

D

e p o s it s

D e p o s it s

4
5

on

T im

e and

...................................................

(a ) M axim um rate ....................................
(b ) M odification o f contracts to con­
form to r e g u la tio n ..........................
(c ) M em ber banks lim ited to m axim um
rate for State b a n k s .....................
(d ) G race periods in com puting interest
on savings deposits .....................
(e) Com putation of in t e r e s t..................
(f) N o interest after m aturity or ex­
piration o f notice ........................
(g) T im e deposits o f foreign govern­
m ental entities and international
o rg a n iz a tio n s ....................................

5

5

M a tu rity

.................................................

(a ) Tim e deposits payable on a specified
date ....................................................
(b ) Tim e deposits payable after a spe­
cified p e r i o d ......................................
(c) T im e deposits payable after a spe­
cified n o t i c e ......................................
(d ) Penalty for early withdrawals . . . .
(e) Disclosure of . early withdrawal
p e n a l t y ...............................................
( f ) Loans upon security of tim e deposits
S e c . 217.5 — W i t h d r a w a l o f S a v in g s D e ­
p o s i t s ...............................................

( a ) Requirem ents regarding notice of
withdrawal ........................................
(b ) Loans on security of savings deposits
(c ) M anner o f paym ent of savings
deposits .............................................

6

6
6
6
6
7
7
7
7
7
7

S e c . 217.6 — A d v e r t i s i n g o f I n t e r e s t o n

5
5
5
5
5

6

D e p o s its

......................................................................

8

(a ) A nnual rate o f simple interest . . . .
8
(b ) Percentage yields based on one year 8
(c ) Percentage yields based o n periods
8
in excess of one y e a r ...................
(d ) T im e or am ount requirem ents . . . .
8
(e ) Penalty fo r early withdrawals . . . .
8
( f ) Profit ......................................................
9
(g ) A ccuracy of a d v e rtis in g ...................
9
(h ) Solicitation o f deposits for banks . .
9
( i ) Negotiable orders of w ithdrawal . .
9
S t a t u t o r y A p p e n d i x ........................................... 10

[S e c . 2 1 7 . 7 — S u p p l e m e n t , M a x im u m R a t e s o f I n t e r e s t P a y a b l e b y M e m b e r B a n k s o n T im e
a n d S a v in g s D e p o s i t s , is p r in te d s e p a ra te ly .]

REGULATION Q
(12 CFR 217)
A s am ended effective D ecem ber 4 , 1975

INTEREST ON DEPOSITS*

(1) O n a certain date, specified in the instru­
ment, not less than 30 days after date of the
(a ) This P art is issued under authority of
deposit, or
provisions of section 19 of the Federal Reserve
(2) A t the expiration o f a certain specified
A ct which, together with related provisions of
time not less than 30 days after the date of the
law, are cited in the Appendix.
instrument, o r
(b) This P art relates to the paym ent of de­
(3) U pon notice in writing which is actually
posits and interest thereon by m em ber banks of
required to be given not less than 30 days before
the Federal Reserve System and not to the com ­
the date of repaym ent,1 and
putation and m aintenance of the reserves which
(4) In all cases only upon presentation and
m em ber banks are required to m aintain against
surrender of the instrument.
deposits. T he rules concerning reserves of m em ber
(d)
T im e deposits, open account. T he term
banks are contained in P art 204 of this chapter.
“tim e deposit, open account” means a deposit,
(c)
T he provisions of this P art do not apply other than a “time certificate of deposit”, with
to any deposit which is payable only at an office
respect to which there is in force a w ritten con­
of a m em ber bank located outside of the States of
tract with the depositor that neither the whole
the U nited States and the D istrict of Columbia.
n o r any p art o f such deposit m ay be withdrawn,
by check or otherwise, p rior to the date of m a tu ­
S EC T IO N 217.1— D E F IN IT IO N S
rity, w hich shall be not less than 30 days after
(a) D em an d deposits. T he term “any deposit
the date of the deposit,2 or prior to the expira­
w hich is payable on dem and”, hereinafter referred
to as a “dem and deposit”, includes every deposit
w hich is not a “time deposit” o r “savings deposit” ,
* The text corresponds to the Code of Federal Regula­
as defined in this section.
tions, Title 12, Chapter II, Part 217; cited as 12 C F R 217.
(b) T im e deposits. The term “tim e deposits”
The words “this P art”, as used herein, mean Regulation Q.
1 A deposit with respect to which the bank merely re­
m eans “tim e certificates of deposit” and “time
serves the right to require notice of not less than 30 days,
deposits, open account”, as defined in this section.
before any withdrawal is made is not a “ time certificate
(c) T im e certificates o f deposit. T he term “time
of deposit” within the meaning of the above definition.
2 Deposits, such as Christmas club accounts and vacation
certificate o f deposit” means a deposit evidenced
club accounts, which are made under written contracts
by a negotiable o r non-negotiable instrum ent
providing that no withdrawal shall be made until a certain
number of periodic deposits have been made during a
w hich provides on its face that th e am ount of
period of not less than 3 months constitute “ time deposits,
such deposit is payable to bearer or to any speci­
open account”, even though some of the deposits are made
fied person o r to his order:
within 30 days from the end of the period.
S EC T IO N 217.0— SCO PE O F P A R T

3

§ 217.1

tion o f the period of notice w hich m ust be given
by the depositor in writing not less than 30 days
in advance of withdrawal.
(e)
Savings deposits. The term “savings deposit”means a deposit—
(1) th a t consists of funds deposited to the
credit of or in which the entire beneficial interest
is held by one o r m ore individuals, o r of a
corporation, association, or other organization
operated prim arily for religious, philanthropic,
charitable, educational, fraternal, or other similar
purposes and not operated for profit;4 or that
consists o f funds deposited to the credit of or
in w hich the entire beneficial interest is held by
the United States, any State of the United States,
o r any county, municipality, or political sub­
division thereof, the District of Columbia, the
Com m onw ealth of Puerto Rico, the Virgin
Islands, A m erican Samoa, G uam , o r political
subdivision thereof; or that consists of funds
deposited to the credit of, or in which any
beneficial interest is held by a corporation, asso­
ciation, or other organization not qualifying
above to the extent such funds do not exceed
$150,000 per such depositor at a m em ber bank;
and
(2) with respect to which the depositor is not
required by the deposit contract but may at any
tim e be required by the bank to give notice in
writing of an intended withdrawal not less than
30 days before such w ithdrawal is m ade and
w hich is not payable on a specified date or at the
expiration of a specified tim e after the date of
deposit.
(3) in those States where banks are permitted
to offer deposits subject to negotiable orders of
withdrawal, such deposits m ay be m aintained if
such deposit consists of funds deposited to the
credit o f o r in w hich the entire beneficial interest
is held by one or m ore individuals, or of a
corporation, association, or other organization op­
1 A deposit with respect to which the bank merely re­
serves the right to require notice of not less than 30 days
before any withdrawal is made is not a “time deposit,
open account” , within the meaning of the above definition.
* Deposits in joint accounts of two or more individuals
may be classified as savings deposits if they meet the
other requirements of the above definition. Deposits of a
partnership operated for profit may also be classified as
savings to the extent such deposits do not exceed $150,000
per partnership at a member bank.
“ The exercise by the bank of its rights to require such
notice shall not cause the deposit to cease to be a savings
deposit.

REGULATION Q

erated prim arily for religious, philanthropic, char­
itable, educational, fraternal, or other similar
purposes, and not operated for profit. Any de­
posit account subject to negotiable orders of
w ithdrawal established p rior to M ay 16, 1975,
which consists of funds deposited to the credit of
o r in w hich the entire beneficial interest is held
by a governm ental unit not qualifying herein may
be maintained through D ecem ber 31, 1975.
(f)
Deposits as including certain promissory
notes and other obligations. F or the purposes of
this Part, th e term “deposits” also includes a
mem ber bank’s liability on any promissory note,
acknow ledgem ent of advance, due bill, o r similar
obligation (written or oral) that is issued or under­
taken by a mem ber bank principally as a means
of obtaining funds to be used in its banking
business, except any such obligation that:
(1) is issued to (or undertaken with respect to)
and held fo r the account o f (i) a bank or an
institution the time deposits o f which are exempt
from § 217.7 pursuant to § 217.3(g) o r (ii) an
agency of the U nited States or the G overnm ent
Developm ent Bank for Puerto Rico;
(2) evidences an indebtedness arising from a
transfer of direct obligations of. or obligations
that are fully guaranteed as to principal and
interest by, the U nited States or any agency
thereof that the bank is obligated to repurchase;
(3) (i) bears on its face, in bold-face type, the
following:

“This obligation is not a deposit and is not
insured by the Federal Deposit Insurance
Corporation”;
states expressly that it is subordinated to the
claims of depositors and ineligible as collateral for
a loan by the issuing bank; is unsecured; has an
original m aturity of 7 years o r more; is in an
am ount of at least $500; and has been approved
by the Com ptroller o f the Currency, in the case
of a national bank, or by the Board of Governors,
in the case o f a State m em ber bank, as an addition
to the b an k’s capital structure; or (ii) meets all
of the requirem ents in the preceding clause except
m aturity and with respect to which the C om p­
troller, in the case of a national bank, or the
Board, in the case of a State m em ber bank, has
determ ined th at exigent circum stances require the
issuance of such obligation without regard to the
provisions of this P art; or (iii) was issued or
publicly offered before lu n e 30, 1970, with an
original m aturity o r m ore than 2 years; or

REGULATION Q

(4)
arises from a borrow ing by a m em ber bank
from a dealer in securities, fo r one business day,
o f proceeds o f a transfer of deposit credit in a
Federal Reserve Bank (or other im m ediately avail­
able funds), com monly referred to as “Federal
funds”, received by such dealer on the date of
the loan in connection with clearance of securi­
ties transactions.
This paragraph shall not, however, affect (i)
any instrum ent issued before June 27, 1966, or
(ii) any instrum ent that evidences an indebted­
ness arising from a transfer of assets under re­
purchase agreem ent issued before July 25, 1969.
(g)
Multiple maturity time deposit. The term
“multiple m aturity time deposit” means any time
deposit (1) that is payable at the depositor’s option
on m ore than one date, w hether on a specified
date or at the expiration of a specified time after
the date of deposit (e.g., a deposit payable at the
option of the depositor either three m onths or
six m onths after the date of deposit), (2) that is
payable after written notice of w ithdrawal, or
(3) w ith respect to which the underlying instru­
m ent or contract or any inform al understanding
or agreem ent provides for autom atic renewal at
maturity.
SEC T IO N 217.2— D E M A N D D EPO SITS
(a) Interest prohibited. Except as provided by
section 19 of the Federal Reserve Act, no m em ber
bank of the F ederal Reserve System shall, directly
or indirectly, by any device whatsoever, pay any
interest on any dem and deposit.
(b) Meaning of interest. W ithin this Part, any
paym ent to o r for the account o f any depositor
as com pensation for the use o f funds constituting
a deposit shall be considered interest.
SEC T IO N 217.3— IN T E R E S T O N T IM E
A N D SA V IN G S D EPO SITS
(a) Maximum rate. E xcept as provided in this
section, no m em ber bank shall, directly or in­
directly, by any device whatsoever, pay interest
on any time o r savings deposit at a rate in excess
of such applicable m axim um rate as the Board of
G overnors o f the F ederal Reserve System shall
prescribe from tim e to time in § 217.7. In as­
certaining the rate of interest paid, the effects
of com pounding of interest may be disregarded.
(b) Modification of contracts to conform to
regulation. N o certificate o f deposit o r other con­

§§ 217.1-217.2-217.3

tract shall be renewed o r extended unless it be
modified to conform to the provisions o f this Part,
and every m em ber bank shall take such action
as may be necessary, as soon as possible con­
sistently with its contractual obligations, to bring
all of its outstanding certificates of deposit or
other contracts into conform ity w ith the provi­
sions o f this Part.
(c) Member banks limited to maximum rate for
State banks. T he rate of interest paid by a mem ber
bank upon a time deposit or savings deposit shall
not in any case exceed (1) the applicable m axi­
mum rate prescribed pursuant to the provisions
of paragraph (a) of this section, or (2) the appli­
cable m axim um rate authorized by law to be paid
upon such deposits by State banks or trust com ­
panies organized under the laws of the State in
w hich such m em ber bank is located, whichever
may be less.
(d) Grace periods in computing interest on sav­
ings deposits. A m em ber bank m ay pay interest
on a savings deposit received during the first 10
calendar days of any calendar m onth at the
applicable m axim um rate prescribed pursuant to
paragraph (a) of this section calculated from the
first day of such calendar m onth until such de­
posit is w ithdraw n or ceases to constitute a savings
deposit under the provisions of this Part, w hich­
ever shall first occur; and a m em ber bank may
pay interest on a savings deposit w ithdraw n d ur­
ing its last 3 business days of any calendar m onth
ending a regular quarterly or semiannual interest
period at the applicable m axim um rate prescribed
pursuant to paragraph (a) of this section cal­
culated to the end of such calendar m onth.
(e) Computation of interest. In the com putation
of simple daily interest, the time factor should be
expressed as a fraction in which the actual num ber
of days the funds earn interest is the num erator,
and the denom inator is either 360, 365, or, in a
leap year, 366. However, when a deposit m atures
in one m onth (or multiples thereof), the bank may
use 30 days in the num erator (or corresponding
multiples thereof).
(f) No interest after maturity or expiration of
notice. A fter the date of m aturity of any time
deposit, such deposit is a dem and deposit, and
no interest m ay be paid on such deposit fo r any
period subsequent to such date. A fter the expira­
tion of the period of notice given with respect
to the repaym ent of any tim e deposit or savings
deposit, such deposit is a dem and deposit and no

§§ 217.3-217.4

REGULATION Q

interest m ay be paid on such deposit fo r any
the presentm ent o f such a certificate fo r paym ent,
period subsequent to the expiration of such notice,
the b ank m ay pay the holder the contract rate
except that, if the ow ner o f such deposit advise
of interest on the deposit fo r the tim e that the
the bank in w riting that the deposit will not be
certificate was actually owned by a n entity so
w ithdraw n pursuant to such notice or that the
exempt.
deposit will thereafter again be subject to the
contract or requirem ents applicable to such de­
S E C T IO N 217.4— P A Y M E N T O F T IM E
posit, the deposit will again constitute a time
D E PO SIT S B E F O R E M A T U R IT Y
deposit o r savings deposit, as the case m ay be,
(a) T im e deposits payable on a specified date.
after th e date upon w hich such advice is received
N o mem ber ban k shall pay any tim e deposit,
by th e bank. On each certificate, passbook, or
which is payable on a specified date, before such
other docum ent representing a tim e deposit, the
specified date, except as provided in paragraph
bank shall have printed or stam ped a conspicuous
(d) of this section.
statem ent indicating th at no interest will be paid
(b) T im e deposits payable after a specified
on the deposit after the m aturity date or, in the
period. N o m em ber bank shall pay any time
case o f a time deposit that is automatically re­
deposit, w hich is payable at the expiration of a
newable, a conspicuous statem ent indicating th at
certain specified period, before such specified
the contract will be renewed autom atically upon
period has expired, except as provided in p ara­
m aturity, an d indicating th e term s o f such
graph (d) of this section.
renewal.
(c) T im e deposits payable after a specified
(g)
T im e deposits o f foreign governm ental en­
notice. N o m em ber bank shall pay any time
tities and international organizations. Section 217.7
deposit, with respect to w hich notice is required
does not apply to the rate of interest th at may be
to be given a certain specified period before any
paid by a m em ber bank on a tim e deposit having
withdraw al is made, until such required notice
a m aturity of 2 years or less and representing
has been given and the specified period thereafter
funds deposited and ow ned by (1) a foreign na­
has expired, except as provided in paragraph (d)
tional governm ent, o r an agency o r instrum en­
of this section.
tality thereof5a engaged principally in activities
(d) P enalty fo r early w ithdraw als. W here a
w hich are ordinarily perform ed in the U nited
tim e deposit, o r any portion thereof, is paid b e­
States by governm ental entities, (2) an interna­
fore m aturity, a m em ber bank may pay interest
tional entity of w hich th e U nited States is a
on the am ount w ithdraw n at a rate not to exceed
m ember, or (3) any other foreign, international,
that currently prescribed in § 217.7 for a savings
or supranational entity specifically designated by
deposit: P rovided, T hat the depositor shall forfeit
the B oard as exempt from § 217.7. All certificates
three months o f interest payable at such rate. If,
of deposit issued by m em ber banks to such enti­
however, the am ount w ithdraw n has remained on
ties on which the contract rate o f interest exceeds
deposit for three months or less, all interest shall
the m axim um prescribed under § 217.7 shall pro­
be forfeited. Where necessary to com ply with the
vide that (1) in the event of transfer, the date of
requirem ents o f this paragraph, any interest al­
transfer, attested to in writing by the transferor,
ready paid to or fo r the account of the depositor
shall appear on the certificate, and (2) the m axi­
shall be deducted from the am ount requested to
m um rate limitations o f § 217.7 in effect at the
be w ithdrawn. However, upon the death of any
date of issuance of the certificate shall apply to
person whose nam e appears on the tim e deposit
the certificate fo r any period during which it is
passbook or certificate, a m em ber bank may pay
held by a person other th an an entity exempt
such time deposit before m aturity without a
therefrom under the foregoing sentence.6 U pon
reduction or forfeiture of interest as prescribed
by this paragraph.61 A ny am endm ent of a time de­
5* Other than States, provinces, municipalities or other
regional or local governmental units, or agencies or in­
strumentalities thereof.
“ A new certificate not maturing prior to the maturity
date of the original certificate may be issued by the
member bank to the transferee, in which event the original
must be retained by the bank. The new certificate may not
provide for interest after the date of transfer at a rate in

excess of he applicable maximum rate authorized by
§ 217.7 as of the date of issuance of the original certificate.
*“ The provisions of this paragraph apply to all time
deposit contracts entered into after July 5, 1973 and to all
existing time deposit contracts that are extended or re­
newed (whether by automatic renewal or otherwise)
after such date, and to all time deposit contracts that

REGULATION Q

§§ 217.4-217.5

posit contract that results in an increase in the
Such statements shall be expressly called to the
attention of the customer. In addition, every nego­
rate of interest paid o r in a change on the m atu­
rity of the deposit constitutes a paym ent of the
tiable Investm ent Certificate shall state conspicu­
time deposit before maturity. P ro vid e d further,
ously on its face that, “This time deposit cannot
T hat Investm ent Certificates issued in negotiable
be paid p rio r to m aturity.”
(f)
L oan s upon security o f tim e deposits. A
form by a mem ber bank pursuant to subpart 3
of § 217 .7 (b ) may not be paid before maturity.
m em ber bank m ay m ake a loan to the depositor
This provision does not prevent a mem ber bank
upon the security of his tim e deposit provided
from arranging the sale or purchase of such a
th at the rate of interest on such loan shall be
certificate on behalf o f the holder or prospective
not less than 2 percent p er ann um in excess of
purchaser of a certificate issued under that sub­
the rate o f interest on the tim e deposit.
part. A m em ber bank m ay not, however, repur­
S E C T IO N 217.5— W IT H D R A W A L
chase such certificates for its own account.
O F SA V IN G S D EPO SITS
W here a tim e deposit representing funds con­
tributed to an Individual Retirem ent A ccount
(a) R equirem ents regarding notice o f w ith­
established pursuant to 26 U.S.C. (I.R.C. 1954)
drawal. W hether or not interest is paid, no m em ­
§ 408 is paid before maturity when the individual '
bers shall require or waive notice of withdrawal
for whose benefit the account is m aintained attains
as to any am ount o r percentage o f the savings
age 5 9 V2 or is disabled (as defined in 26 U.S.C.
deposit of any depositor unless it shall similarly
(I.R.C. 1954) 72{m)(7)) or thereafter, a mem ber
require o r waive such notices as to the same
bank m ay pay all or a portion of such tim e
am ount or percentage of the savings deposits of
deposit without a reduction or forfeiture of interest
every other depositor w hich are subject to the
as prescribed by this paragraph.
same contractual provisions w ith respect to notice
(e)
D isclosu re o f early w ithdraw al penalty. A t of w ithdrawal. If a m em ber bank, w ithout requir­
the time a depositor enters into a tim e deposit
ing notice o f w ithdraw al, pays interest that has
contract w ith a m em ber bank, the bank shall pro­
accrued on a savings deposit during the preceding
vide a w ritten statem ent of the effect o f the
interest period, it shall, upon request an d without
penalty prescribed in paragraph (d) of this sec­
requiring such notice, pay interest that has ac­
tion, w hich shall (1) state clearly th a t the cus­
crued during said period on the savings deposits
tom er has contracted to keep his funds on deposit
of every other depositor. N o m em ber bank shall
for th e stated m aturity, an d (2) describe fully
change its practice w ith respect to the requiring
and clearly how such penalty provisions apply
or waiving of notice of withdraw al o f savings
to tim e deposits in such bank, in the event the
deposits fo r the purpose of discriminating in
bank, nothw ithstanding the contract provisions,
favo r of or against any depositor o r depositors,
perm its paym ent before m aturity. Such statements
and no such change of practice shall be m ade
shall be expressly called to the attention of the
except pursu ant to duly recorded action of the
customer. W ritten statements m ade w ith respect
bank’s board of directors o r a properly authorized
to negotiable Investm ent Certificates issued by a
com m ittee thereof.
m em ber b ank pursuant to subpart 3 of § 217.7(b)
(b) L oans on security o f savings deposits. If it
shall state clearly th at no paym ent before m atu­
is not the practice of a m em ber bank to require
rity will be perm itted under any circumstances.
notice of withdraw al of savings deposits, no
restrictions are imposed by this P art upon loans
are amended after such date so as to increase the rate
by such bank to its depositors upon the security
of interest paid. AH contracts not subject to the provisions
of such deposits. If it is the practice of a m em ber
of this paragraph shall be subject to the restrictions of
§ 217.4(d) in effect prior to July 5, 1973, which permitted
bank to require notice of w ithdraw al o f a savings
payment of a time deposit before maturity only in an
deposit, such bank m ay m ake loans to a depositor
emergency where necessary to prevent great hardship to
upon the security of such deposit, but the rate of
the depositor, and which required the forefeiture of
accrued and unpaid interest for a period of not less than
interest on such loans shall be not less th an 2 per
3 months on the amount withdrawn if an amount equal
cent per annum in excess of the rate of interest
to the amount withdrawn had been on deposit for 3
paid on such deposit.
months or longer, and the forfeiture of all accrued and
unpaid interest on the amount withdrawn if an amount
(c) M anner o f paym ent o f savings deposits.
equal to the amount withdrawn had been on deposit less
(1) Subject to the provisions of subparagraphs
than 3 months.

§§ 217.5-217.6

(2)
and (3) of this paragraph, a m em ber bank
m ay perm it withdraw als to be m ade fro m a sav­
ings deposit only through p ay m en t7 to th e deposi­
tor him self (but not to any other person whether
or not acting for the depositor), except
(1) w here the deposit is represented by a pass­
book, to any person presenting th e p assb o o k ;7
(ii) to any executor, adm inistrator, trustee, or
other fiduciary holding the savings deposit as part
of a fiduciary estate, or to a person, other than
the bank, holding a general pow er of attorney
granted by the depositor.
(iii) to any person, including the bank, that
has extended credit to the depositor on the secu­
rity of the savings deposit, w here such paym ent
is m ade in order to enable the creditor to realize
upon such security;
(iv) pursuant to the ord er of a court o f com ­
petent jurisdiction;
(v) upon the death of the depositor, to any
person authorized by law to receive the deposit; or
(vi) interest paid to a third person pursuant to
w ritten instruction or assignment by the depositor
accepted by the bank, and placed on file therein.
(vii) pursuant to nontransferable withdrawal
orders or authorizations received from a depositor
by a m em ber bank for the paym ent of amounts
from such deposits to third parties, including the
bank (except as prohibited by subparagraph 2),
periodically or otherwise. A ny such withdrawal
order or authorization th at may be honored as a
withdrawal request for paym ent to a third party
may, if so authorized by th e third party, be
honored as a transfer to an account of such third
party. Any form for such withdrawal order or
authorization shall contain language in boldface
type of reasonable size to the effect that it is not
negotiable o r transferable.
(2) N otw ithstanding the provisions of subpara­
graph (1) of this paragraph, no w ithdrawal shall
be perm itted by a mem ber bank to be made from
a savings deposit, through paym ent to the bank
itself or through transfer of credit to a dem and
o r other deposit account of the same depositor
(other than of interest on the savings deposit) if
such paym ent o r transfer is m ade pursuant to any
advertised plan or any agreement, written or oral
which authorizes such paym ents or transfers of
7 Payment from a savings deposit or presentation of a
passbook may be made over the counter, through the
mails, or otherwise.

REGULATION Q

credit to be m ade automatically or as a norm al
practice in order to cover checks o r drafts drawn
by the depositor upon the bank.
(3) The provisions of this paragraph do not
apply to deposits subject to negotiable orders of
withdrawal authorized by F ederal law to be issued
in the States of Massachusetts and N ew H am pshire.
(4 ) W here a savings deposit is evidenced by a
passbook, every withdraw al made upon presenta­
tion o f the passbook shall be entered in the pass­
book at the tim e o f withdrawal, and every other
w ithdrawal for such a deposit shall be entered
in the passbook as soon as practicable after w ith­
draw al is made.
S EC T IO N 217.6— A D V E R T IS IN G
O F IN T E R E S T O N D EPO SITS
E very advertisement, announcem ent, o r solici­
tation relating to the interest paid on deposits in
m em ber banks shall be governed by the following
rules;
(a) Annual rate of simple interest. Interest rates
shall be stated in term s o f the annual rate of
simple interest. In no case shall a rate be adver­
tised th at is in excess o f th e applicable m axim um
rate fo r the particu lar deposit.
(b) Percentage yields based on one year. W here
a percentage yield achieved by com pounding in­
terest during one year is advertised, the annual
rate of simple interest shall be stated with equal
prom inence, together w ith a reference to the
basis o f com pounding. N o m em ber bank shall
advertise a percentage yield based on the effect
of grace periods perm itted in § 217.3(d).
(c) Percentage yields based on periods in excess
of one year. N o advertisem ent shall include any
indication of a total percentage yield, com pounded
o r simple, based on a period in excess of a year,
o r an average annual percentage yield achieved by
com pounding during a period in excess of a year.
(d) Time or amount requirements. If an adver­
tised rate is payable only on deposits th at meet
tim e o r am ount requirem ents, such requirem ents
shall be clearly and conspicuously stated. W here
the time requirem ent fo r an advertised rate is in
excess o f a year, the required num ber o f years
fo r the rate to apply shall be stated with equal
prom inence, together with an indication of any
low er rate o r rates th at will apply if the deposit
is w ithdraw n at an earlier maturity.
(e) Penalty for early withdrawals. A ny adver­
tisement, announcem ent, o r solicitation relating

REGULATION Q

to interest paid by a m em ber bank on tim e de­
posits shall include clear and conspicuous notice
that F ederal law and regulation prohibit the bank
from allowing paym ent o f a tim e deposit before
m aturity unless substantial interest is forfeited.
Such notice m ay state that,
“F ederal law and regulation prohibit the
paym ent of a tim e deposit prior to m aturity
unless three m onths of the interest thereon
is forfeited and interest on the am ount with­
draw n is reduced to the passbook rate.”
With respect to any advertisement, announce­
ment, o r solicitation m ade by television or radio,
the required notice of penalty m ay be stated in a
form such as “Substantial interest penalty is re­
quired for early w ithdraw al.” A ny advertisement,
announcem ent o r solicitation relating to interest
paid by a m em ber bank on negotiable Investm ent
Certificates issued pursuant to subpart 3 of
§ 217.7(b) shall include clear and conspicuous
notice that Federal law and regulation prohibit
the paym ent of such certificate prior to m aturity.
(f) Profit. T he term “profit” shall not be used
in referring to interest paid on deposits.
(g) A ccuracy o f advertising. N o m em ber bank
shall m ake any advertisement, announcem ent, o r
solicitation relating to the interest paid on deposits
that is inaccurate o r misleading or that misrep­
resents its deposit contracts.
(h) S olicitation o f deposits for banks. A ny per­

§ 217.6

son or organization th a t solicits deposits for a
m em ber bank shall be bound by the rules con­
tained in this section with respect to any adver­
tisement, announcem ent, or solicitation relating to
such deposits. N o such person o r organization
shall advertise a percentage yield on any deposit
it solicits fo r a m em ber bank that is not author­
ized to be paid and advertised by such bank.
(i)
N egotiab le orders o f w ithdraw al. In addi­
tion to compliance with the other paragraphs of
this section, m em ber banks offering accounts sub­
ject to negotiable orders of w ithdrawal, to the
extent practicable, shall limit every advertise­
ment, announcem ent o r solicitation made in any
newspaper, magazine, radio, television o r other
m edia to such facilities directed tow ard residents
o f N ew H am pshire and M assachusetts. All other
advertisement, announcem ents and solicitations
of such accounts, including direct mailing, circu­
lars, and notices, w hether w ritten o r oral, to the
extent practicable, shall be directed only to p er­
sons residing or em ployed in N ew H am pshire and
M assachusetts and to persons who are customers
o f m em ber banks in those States on the effective
date o f this am endm ent.
(SECTIO N 217.7— M A X IM U M RA T E S O F
IN T E R E S T PA Y A B L E BY M E M B E R BA N K S
O N T IM E A N D SA V IN G S DEPOSITS, is
printed separately.)

REGULATION Q

STATUTORY APPENDIX

STATUTORY APPENDIX

Section 19 of the F ederal Reseve A ct provides
in p a rt as follows:
(a)
T he Board is authorized for the purposes
of this section to define the term s used in this
section, to determ ine w hat shall be deemed a
paym ent o f interest, to determ ine w hat types of
obligations, w hether issued directly by a m em ber
bank or indirectly by an affiliate of a mem ber
bank o r by other meanSjand, regardless of the use
of the proceeds, shall be deemed a deposit, and to
prescribe such regulations as it m ay deem neces­
sary to effectuate the purposes of this section and
to prevent evasions thereof.

agency, or officer of the foregoing, as is incon­
sistent with the provisions o f this section as
am ended, is hereby repealed.
[U.S.C., title 12, sec. 371a.]

(j) The Board m ay from tim e to time, after
consulting with the Board of D irectors of the
F ederal D eposit Insurance C orporation and the
F ederal H om e L oan B ank Board, prescribe rules
governing the paym ent and advertisement of in­
terest on deposits, including limitations on the
rates of interest w hich m ay be paid by mem ber
banks on time and savings deposits. T he Board
m ay prescribe different rate limitations for dif­
ferent classes of deposits, fo r deposits of different
[ U . S . C . , t i t l e 12, s e c . 4 6 1 ]
am ounts or with different m aturities o r subject
• ••
to different conditions regarding withdraw al or
(i)
N o m em ber bank shall, directly o r indi­
repayment, according to the nature or location
rectly, by any device whatsoever, pay any interest
of mem ber banks or their depositors, o r accord­
o n any deposit w hich is payable on dem and:
ing to such other reasonable bases as the Board
Provided, T h at nothing herein contained shall be
m ay deem desirable in the public interest. N o
construed as prohibiting the paym ent of interest
m em ber bank shall p ay any tim e deposit before
in accordance with the term s of any certificate of
its m aturity except upon such conditions and in
deposit o r other contract entered into in good
accordance w ith such rules and regulations as
faith w hich is in force on the date on w hich the
m ay be prescribed by the said Board, o r waive
bank becomes subject to the provisions of this
any requirem ent of notice before paym ent of
paragraph; but no such certificate o f deposit or
any savings deposit except as to all savings de­
other contract shall be renewed o r extended u n ­
posits having the same requirem ent: P ro vided ,
less it shall be modified to conform to this p ara­
T hat the provisions of this paragraph shall not
graph, and every m em ber bank shall take such
apply to any deposit w hich is payable only at an
action as m ay be necessary to conform to this
office of a m em ber ban k located outside of the
paragraph as soon as possible consistently with its
States of the U nited States and the D istrict of
contractual obligations: P ro v id e d further, T h at
Columbia. D uring the period com mencing on
this paragraph shall not apply to any deposit of
October 15, 1962, and ending on O ctober 15,
such bank w hich is payable only at an office
1968, the provisions of this paragraph shall not
thereof located outside of the States of the United
apply to the rate of interest which m ay be paid
States and the District of Colum bia: P ro vid ed
by m em ber banks on tim e deposits of foreign
further, T h at until the expiration o f two years
governments, m onetary and financial authorities
after the date of enactm ent of the Banking A ct of
o f foreign governments when acting as such, or
1935 this paragraph shall not apply (1 ) to any
international financial institutions o f which the
deposit m ade by a savings bank as defined in sec­
U nited States is a member.
tion 12B o f this Act, as amended, or by a m utual
[ U . S . C . , t i t l e 1 2 , s e c . 3 7 1 b . T h e f ir s t t w o s e n t e n c e s o f t h i s
savings bank, o r (2 ) to any deposit of public
p a r a g r a p h a re , in p a r t , te m p o r a r y . U n le ss se c tio n 7 o f th e A c t
funds m ade by or on behalf of any State, county,
o f S e p t e m b e r 21 1 9 6 6 ( 8 0 S t a t . 8 2 5 ) , a s a m e n d e d b y t h e A c t
school district, or other subdivision o r municipal­
O c t o b e r 2 8 , 1 9 7 4 (8 8 S t a t. 1 5 0 5 ) , is m o d if ie d , o n D e c e m b e r 3 1 ,
1975, s u c h s e n te n c e s w ill r e a d a s fo llo w s : “ T h e B o a r d o f
ity, o r to any deposit of trust funds if the pay­
G o v e r n o r s o f th e F e d e r a l R e s e rv e S y ste m s h a ll f r o m tim e to
m ent of interest with respect to such deposit of
t im e p r e s c r i b e r u l e s g o v e r n i n g t h e p a y m e n t a n d a d v e r t i s e m e n t
of in te r e s t o n d e p o s its , in c lu d in g lim ita tio n s o n th e r a t e o f
public funds or of trust funds is required by State
in te r e s t w h ic h m a y b e p a id b y m e m b e r b a n k s o n tim e a n d
law. So m uch o f existing law as requires the pay­
s a v in g s d e p o s i t s , a n d s h a ll p r e s c r i b e d i f f e r e n t r a t e s f o r s u c h
m ent of interest with respect to any funds de­
p a y m e n t o n t im e a n d s a v in g s d e p o s i t s h a v i n g d i f f e r e n t m a t u r i ­
t ie s , o r s u b j e c t t o d i f f e r e n t c o n d i t i o n s r e s p e c t i n g w i t h d r a w a l o r
posited by the U nited States, by any Territory,
re p a y m e n t, o r s u b je c t to d iffe re n t c o n d itio n s b y r e a s o n o f
District, o r possession thereof (including the Phil­
d iffe re n t lo c a tio n s , o r a c c o rd in g t o th e v a ry in g d is c o u n t r a te s
ippine Islands), or by any public instrumentality,
o f m e m b e r b a n k s i n t h e s e v e r a l F e d e r a l R e s e r v e d i s t r i c t s , ’*]