FDIC FAQs-If an IDI offers “relationship pricing” in the form of higher interest rates to depositors with multiple accounts will the noninterest-bearing DDAs of such deposits be fully insured under the Dodd-Frank Deposit Insurance Provision?

Compliance > Deposit Operations > FDIC FAQs on Insurance and Payment of Interest on Demand Deposit Accounts

Q:  If an IDI offers “relationship pricing” in the form of higher interest rates to depositors

with multiple accounts (with an option to set up an internal deposit-to-deposit sweep

arrangement), will the noninterest-bearing DDAs of such depositors be fully insured

under the Dodd-Frank Deposit Insurance Provision?

A:  Pursuant to 12 C.F.R. § 330.101(e), if the interest rate paid or other premium given by an

IDI to a depositor is, directly or indirectly, related to or dependent on the balance or the

duration of the balance maintained in the depositor’s DDA, then the DDA will be deemed

interest-bearing and, therefore, not subject to unlimited deposit insurance coverage under

the Dodd-Frank Deposit Insurance Provision.

For example, if the rate of interest paid on an interest-bearing deposit account is conditioned

on the customer maintaining a minimum balance in a noninterest-bearing DDA, the FDIC

would attribute part of the interest earned on the interest-bearing account to the DDA. As a

result, the DDA would not be deemed a noninterest-bearing transaction account fully

insured under the Dodd-Frank Deposit Insurance Provision.

The same result would apply if the account agreements include a sweep arrangement where

funds are swept daily from an interest-bearing account to a noninterest-bearing DDA, so that

the depositor maintains a required minimum balance in the noninterest-bearing DDA.

In contrast, if the rate paid on an interest-bearing account remains the same regardless of the

balance maintained in the noninterest-bearing DDA, then no portion of the interest earned will
be attributed to the noninterest-bearing DDA.

 

This can be found in - FAQ#14 of FDIC’s FAQs.  FDIC’s FAQs can be found at: http://www.fdic.gov/deposit/deposits/unlimited/faq.pdf

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