Q: Under Reg. D, a “Savings Deposit” account is a type of nontransaction account. What is a “savings deposit” account?
A: Savings deposits generally have no specified maturity period. They may be interest-bearing, with interest computed or paid daily, weekly, quarterly, or on any other basis.
The two most significant features of savings deposits are the ‘‘reservation of right’’ requirement and the restrictions on the number of ‘‘convenient’’ transfers or withdrawals that may be made per month (or per statement cycle of at least four weeks) from the account. In order to classify an account as a ‘‘savings deposit,’’ the institution must in its account agreement with the customer reserve the right at any time to require seven days’ advance written notice of an intended withdrawal. In practice, this right is never exercised, but the institution must nevertheless reserve that right in the account agreement. In addition, for an account to be classified as a ‘‘savings deposit,’’ the depositor may make no more than six ‘‘convenient’’ transfers or withdrawals per month from the account. ‘‘Convenient’’ transfers and withdrawals, for purposes of this limit, include preauthorized, automatic transfers (including but not limited to transfers from the savings deposit for overdraft protection or for direct bill payments) and transfers and withdrawals initiated by telephone, facsimile, or computer, and transfers made by check, debit card, or other similar order made by the depositor and payable to third parties. Other, less-convenient types of transfers, such as withdrawals or transfers made in person at the bank, by mail, or by using an ATM, do not count toward the six-per-month limit and do not affect the account’s status as a savings account. Also, a withdrawal request initiated by telephone does not count toward the transfer limit when the withdrawal is disbursed via check mailed to the depositor.
Examiners will be particularly wary of a bank’s practices for handling telephone transfers. As noted, an unlimited number of telephone initiated withdrawals are allowed so long as a check for the withdrawn funds is mailed to the depositor. Otherwise, the limit is six telephone transfers per month. The limit applies to telephonic transfers to move savings deposit funds to another type of deposit account and to make payments to third parties.
The limit on telephone transfers applies to both business and personal accounts, but banks should handle accounts that exceed the limit differently. Generally, if a savings deposit account exceeds, or is authorized to exceed, the ‘‘convenient’’ transfer limit, the bank should take away the transfer and draft capabilities of the account or close the account and place the funds in another account that the depositor is eligible to maintain. If the depositor is a natural person, the funds may be placed in a NOW account. If the depositor is not a natural person, the bank may be required to reclassify the account as a demand account, as businesses are not allowed to hold NOW accounts.
Savings deposit accounts have the following characteristics:
• have no maturity
• institutions must reserve the right at any time to require at least seven days’ written notice of an intended withdrawal (in practice, this right is rarely, if ever, exercised)
• may be interest-bearing
• allow no more than six transfers or withdrawals per calendar month or statement cycle of at least four weeks for the purpose of transferring funds to another of the depositor’s accounts at the same institution or making third-party payments by means of preauthorized, automatic, or telephonic transfers or transfers or withdrawals made by check, debit card, or other similar order made by the depositor and payable to third parties
• allow unlimited withdrawals by mail, messenger, ATM, in person, or by telephone (via check mailed to the depositor)
• have no eligibility requirements
• must be reclassified as a transaction account if withdrawal or transfer limits are exceeded
• may be reclassified as NOW accounts if held by a natural person and the withdrawal or transfer limits are exceeded
• includes money market deposit accounts (MMDAs)