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F ederal

reserve bank of

Dallas

DALLAS, TEXAS 75222
Circular No. 70-38
February 175 1970

To All Member Banks
in the Eleventh Federal Reserve District:

On the following pages are two interpretations of
Regulation Q recently issued by the Board of Governors of
,
the Federal Reserve System.

One relates to the giving of

premiums to depositors and the other to the need for informing
depositors of the method used in computing and paying interest.
The Federal Deposit Insurance Corporation and the
Federal Home Loan Bank Board have taken similar positions and
are so advising the institutions under their supervision.
Yours very truly,
P. E. Coldwell
President

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

TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
PART 217— INTEREST ON DEPOSITS
[Reg. QJ
Premiums; Method of Computing Interest

§ 217.147

Premiums not considered payment of interest.
Section 217.2(b) of the Board's Regulation Q, relating

to the payment of interest on deposits, provides that, for pur­
poses of the Regulation, "any payment to or for the account of any
depositor as compensation for the use of funds constituting a deposit
shall be considered interest*"

In applying this provision on and

after March 1, 1970, the Board of Governors will regard premiums
(whether in the form of merchandise, credit, or cash) given by
member banks to their depositors as an advertising or promotional
expense rather than a payment of interest if (a) the premium is
given to a depositor only at the time of the opening of a new
account or an addition to an existing account; (b) the premium is
not given to any depositor on a recurring basis; and (c) the value
of the premium or, in the case of articles of merchandise, the
wholesale cost (excluding shipping and packaging costs) does not
exceed $5*00, except that the value or wholesale cost may be not
more than $10.00 if the amount of the deposit is $5,000 or more.

§ 217.148

Information regarding computation of interest on deposits.
Section 217.6(f) of the Board’s Regulation Q, relating to

payment of interest on deposits, provides:
1
1
(f) Accuracy of advertising*. No member bank shall
make any advertisement, announcement, or solicitation
relating to the interest paid on deposits that is inac­
curate or misleading or that misrepresents its deposit
contracts
Within the spirit of this provision and in order to avoid misunder­
standings on the part of its customers, every member bank should
inform the holder of a time or savings account at the time of the
opening of such account as to the method that will be used in
computing and paying interest on the account, including any pro­
vision for nonpayment of interest on deposits made after the
beginning of an interest-payment period or withdrawn before the
end of such period.

In addition, if the bank subsequently makes

a change in such method that will be less favorable to a depositor
than the previous method, notice of such change should be mailed
to each depositor at his last known address.
(12 U.S.C. 248(i).

Interprets and applies 12 U.S.C, 371a,

371b, and 461.)
By order of the Board of Governors, February 12, 1970.
(Signed) Kenneth A. Kenyon

Kenneth A. Kenyon,
Deputy Secretary.
[SEAL]