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FEDERAL RESERVE BANK OF N EW YORK r C ircu la r N o . 6 3 5 1 "1 U Ju n e 18, 1969 J A M E N D M E N T S T O R E G U L A T IO N Q A d v e r tis in g o f In te re st o n D e p o sits To All Member Banks, and Others Concerned, in the Second Federal Reserve District: Following is the text of a statement issued yesterday by the Board of Governors of the Federal Reserve System: The B oard o f Governors o f the Federal Reserve System today adopted regulations governing the advertising of interest paid on deposits in member banks of the Federal Reserve System. The action, which will become effective A ugust 1, amends Federal Reserve Regulation Q, “ Payment o f Interest on D eposits,” and implements the authority granted to the B oard by Congress in the A ct o f September 21, 1968 (P .L . 9 0 -5 0 5 ). Similar regulations are being issued by the Federal Deposit Insurance Corporation and b y the Federal Home Loan Bank B oard with respect to insti tutions under their jurisdictions. The regulation sets out rules governing bank advertising of interest rates and yields on deposits. It was first issued fo r comment by the Board on March 28, 1969. The new rules super sede advertising guidelines set forth in a 1966 statement of policy. Under the regulation, any State member bank or national bank that advertises a percentage yield on deposits based on one year is required to include an equally prominent statement o f the simple interest rate, together with a reference to the method of com pounding. A dvertising o f percentage yields based on periods in excess o f one year, which w ould have been permissible in certain circumstances under the regulation as published fo r comment, is prohibited by the regulation as adopted, in the interests o f greater clarity. Enclosed is a copy of the amendments to Regulation Q; additional copies will be furnished upon request. A lfred H ayes, President. B oard of G overnors of t h e F ederal R eserve System P A Y M E N T O F I N T E R E S T O N D E P O S IT S A M E N D M E N T S TO R E G U L A T IO N Q Effective A ugust 1, 1969, Part 217 (Regulation Q) is amended in the f ollowing respects: 1. The heading of the Part is amended to read as follow s: P A R T 217— IN TE R E ST ON DEPOSITS 2. The last two sentences of section 217.6 are revoked and the re mainder of that section redesignated as section 217.7. 3. The heading of section 217.3 and subsections (a) and thereof are amended to read as follow s: (e) SE C TIO N 217.3— IN T E R E S T ON TIM E A N D S A V IN G S D E P O S IT S (a) Maximum rate.— E xcept as provided in this section, no mem ber bank shall, directly or indirectly, by any device whatsoever, pay interest on any time or savings deposit at a rate in excess o f such applicable maximum rate as the Board o f Governors of the Federal Reserve System shall prescribe from time to time in section 217.7. In ascertaining the rate o f interest paid, the effects of com pounding of interest may be disregarded. m * * ( e ) Technical grace periods in com puting interest on certain time deposits.— W here a time deposit matures in 30 days, 90 days, 180 days, 360 days, or even multiples of these periods, or where a time deposit matures in one month, three months, six months, twelve months, or even multiples of these periods, member banks may pay interest for such periods at one twelfth o f the maximum rate, one quarter o f the maximum rate, one half o f the maximum rate, or at the maximum rate, or even multiples thereof, respectively. In the case o f any other time deposit, no member bank shall pay interest at the maximum rate based on more days than the number of days the funds are actually on deposit. 4. In section 217.3 (g) the reference to “ section 217.6” is amended to refer to “ section 217.7.” ( over) P R IN TE D IN N E W YORK 5. A new section 217.6 is added to read as follow s: SE C T IO N 217.6— A D V E R T IS IN G OF IN T E R E S T ON D E P O S IT S E very advertisement, announcement, or solicitation relating to the interest paid on deposits in member banks shall be governed by the follow ing rules: ( a ) Annual rate o f simple interest.— Interest rates shall be stated in terms o f the annual rate o f simple interest. In no case shall a rate be advertised that is in excess o f the applicable maximum rate fo r the particular deposit. ( b ) Percentage yields based on one year.— W here a percentage yield achieved by com pounding interest during one year is advertised, the annual rate of simple interest shall be stated with equal prom i nence, together with a reference to the basis o f com pounding. No member bank shall advertise a percentage yield based on the effect o f grace periods permitted in section 217.3. (c ) Percentage yields based on periods in excess of one year.— No advertisement shall include any indication o f a total percentage yield, com pounded or simple, based on a period in excess of a year, or an average annual percentage yield achieved by com pounding during a period in excess of a year. ( d ) Tim e or amount requirements.— I f an advertised rate is pay able only on deposits that meet time or amount requirements, such requirements shall be clearly and conspicuously stated. W here the time requirement fo r an advertised rate is in excess o f a year, the re quired number o f years fo r the rate to apply shall be stated with equal prominence, together with an indication of any lower rate or rates that will apply if the deposit is withdrawn at an earlier maturity. ( e ) Profit.— The term “ p rofit’ ’ shall not be used in referring to interest paid on deposits. ( / ) A ccuracy of advertising.— No member bank shall make any advertisement, announcement, or solicitation relating to the interest paid on deposits that is inaccurate or misleading or that misrepresents its deposit contracts. (g ) Solicitation of deposits for banks.— A n y person or organiza tion that solicits deposits fo r a member bank shall be bound by the rules contained in this section with respect to any advertisement, announcement, or solicitation relating to such deposits. No such person or organization shall advertise a percentage yield on any deposit it solicits for a member bank that is not authorized to be paid and adver tised by such bank.
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