Q: Under Reg. D, a “Time Deposit” account is a type of nontransaction account. What is a “time deposit” account?
A: Time deposits are accounts that have a maturity of at least seven days from the date of deposit. They may be payable on a specified date not less than seven days after the date of deposit, or after the expiration of a specified period of time not less than seven days after the date of deposit (for example, thirty days after the date of deposit). Time deposits may also be payable upon receipt of written notice from the depositor (required in the contract) not less than seven days prior to withdrawal. If funds are withdrawn from a time deposit account within six days of the date of deposit or within six days of the most recent partial withdrawal, the specified early withdrawal penalty must be imposed (see ’’Early Withdrawal Penalties’’ below). There are no restrictions on who may hold a time deposit.
Time deposits may be negotiable or nonnegotiable, transferable or nontransferable. They may be represented by a certificate, instrument, pass-book, statement, book-entry notation, or otherwise. If the deposit is automatically renewable, that fact should be indicated on the certificate or other representation, along with the terms of renewal.
Time deposit accounts have the following characteristics:
• must have a maturity of at least seven days from the date of deposit
• may require at least seven days’ prior written notice of intent to withdraw funds
• must be subject to early withdrawal penalties if funds are withdrawn within six days of the date of deposit or within six days of the date of the immediately preceding partial withdrawal
• may be interest-bearing
• may be evidenced by a negotiable or nonnegotiable, transferable or nontransferable certificate, instrument, passbook, book entry, or other similar instrument
• include club accounts (such as Christmas club or vacation club accounts)
• no eligibility requirements
Early Withdrawal Penalties. The presence (or absence) of an early withdrawal penalty differentiates time deposit on the one hand from other kinds of accounts on the other hand. The early withdrawal penalty must be at least seven days’ simple interest on amounts withdrawn within the first six days after deposit (or within six days after the most recent partial withdrawal). If funds are withdrawn more than six days after the date of deposit or more than six days after the most recent partial withdrawal, no interest penalty is required under Regulation D.
Penalties listed under Regulation D are the minimum federal penalties required by Regulation D and the Federal Reserve Act. Banks are free to impose greater penalties by contract with the depositor.
If a bank fails to impose early withdrawal penalties when they are required by Regulation D, the account may not be classified as a time deposit. If the account meets all the necessary requirements for a savings deposit account, the bank may reclassify it as such. Otherwise, the account must be reclassified as a transaction account.