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