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F E D E R A L R E S E R V E BA NK O F N E W YORK r Circular No. 5 1 2 0 *1 L December 8, 1961 J Interpretations of Supplement, Effective January 1, 1962, to Regulation Q To A ll M em ber Banks o f the Second Federal R eserve D istrict: To clarify questions that have been raised with respect to maximum permissible rates of interest payable on time and savings deposits under the revised Supplement to Regulation Q, which become effective on January 1, 1962, the Board of Governors of the Federal Reserve System has issued the following comments to the Federal Reserve Banks: A lth ou g h the m axim um rate on savings d ep osits w ill d ep en d u p on the len gth o f tim e that the deposit has rem ained w ith the bank, the m axim um rate on tim e deposits (certificates an d tim e op en a ccou n ts) w ill continue, as h eretofore, to be d ependen t u p on the stated m a tu rity o f the certificate o r the p rescrib ed p eriod o f notice o f w ith d raw al an d n ot u p on the len gth o f tim e the deposit has rem ained in the bank. F o r exam ple, the m axim um perm issible rate on a 6-m onths’ certificate o f deposit w ou ld be 3 ^ p e r cent even though, because o f renewals, the deposit rem ains in the bank 12 m onths or m ore. Tim e certificates issued p r io r to J a n u a ry 1, 1962 m ay be am ended, i f desired, to bear interest up to the applicable increased m axim um rates fo r the p e riod subsequent to that date. Thus, a certificate dated J u ly 1, 1961, m atu rin g J u ly 1, 1962, m ay be am ended to bear interest u p to 4 p e r cent fo r the p e rio d subsequent to J a n u a ry 1, 1962. A n y savings deposit that has rem ained on d ep osit con tin u ou sly fo r 12 m onths or m ore p r io r to J a n u ary 1, 1962, m ay bear interest at any rate up to 4 p er cent fo r the p e riod fo llo w in g that date b u t n ot fo r any p eriod p rio r thereto. A fte r an y savings deposit, w h eth er m ade b e fo re o r a fte r J a n u a ry 1, 1962, has rem ained con tin u ou sly on deposit fo r 12 m onths, interest m a y be p a id at an y rate u p to 4 p e r cent f o r the p eriod subsequent to Ja n u a ry 1, 1962. W h ere interest is p a id at a rate o f 3^ p er cent o r less fo r a p e rio d subsesequent to J a n u a ry 1, 1962, w hen the d ep osit has been in the bank fo r less than 12 m onths, bu t w here the deposit continues in the bank fo r 12 m onths, the ban k m ay then p a y such ad d ition a l interest fo r the p eriod subsequent to Ja n u a ry 1, 1962 as w ill not cause the rate fo r such p e rio d to exceed 4 p er cent. F o r exam ple, i f $1,000 is deposited M arch 1, 1962, and the b an k th ereafter cred its 3 % p er cent interest, an d i f that am ount rem ains on deposit u n til M arch 1, 1963, the bank m ay then cred it an ad d ition a l on e-h alf o f 1 p er cent on that am ount fr o m M arch 1, 1962, so that in terest fo r the 12 m onths w ou ld be at the rate o f 4 p e r cent. In determ in in g the m axim um perm issible rate on savings deposits, the p ortion o f an y such d ep osit that has ‘ ‘ rem ained on deposit fo r not less than 12 m o n th s” is the m inim um balance in the accou n t at a n y tim e d u rin g such p eriod . I t should be em phasized that the above in terp reta tion s relate to the m axim um perm issible rates o f interest and do n ot p reclu d e m em ber banks fr o m p a y in g less than such m axim um interest b y reason o f low er rates o r com pu tation procedu res. N otw ith stan din g the B o a r d ’s action, it should be born e in m ind that State m em ber banks, as w ell as n ational banks u n d er section 24 o f the F e d era l R eserve A c t, m ay n ot p a y interest on tim e o r savings deposits at an y rate in excess o f that authorized b y o r p u rsuan t to State law fo r State banks or trust com panies. Additional copies of this circular will be furnished upon request. A lfred H ayes, President.
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