We have interest bearing deposit accounts, based on prime minus a margin. These accounts are now at 0%. Are we allowed to pay 0% on interest bearing accounts? Does it matter if the account has a tiered rate or not? (Lower tiers at 0.) The reg DD disclosure makes it pretty clear, but it doesn't feel right.

Thanks,

Deb

There are no issues of which I am aware. What are you going to do when prime drops again? Does your contract have a rate floor of 0%?

Thanks Randy. Besides start a new career, outside of banking, another decrease in prime would mean at least another tier going to zero. None of our interest-bearing contracts have a floor.

If the bank checking account has a sweep arrangement whereby the swept funds in an external investment account are earning 0% could we cancel the sweep feature and return the customer's funds to their checking account without advance notification?

You would have to look at your sweep contract to see how to change the terms.

They would lose collateralization, so it's not a meaningless arrangement, even if they aren't earning anything.

We also have tiered and variable rate deposit accounts that have reached 0%. As a result some of our large deposit customers are asking us to increase their rate. Does anyone know if we can temporarily increase the interest rate for these few customers, but not for the whole product? This would be in lieu of creating a whole new product jsut for them and moving them into it. Most of these customers are business or institutional related.

Negotiated rates are not uncommon and if these are not consumers, you have no Reg DD implications. Just make sure your internal controls are established to set-up and continuously monitor these accounts for appropriate rate changes.

I just got a question regarding this exact same issue. We have a tiered account that currently pays 0% interest on the lowest tier ($1-$1,000). The potential issue I'm seeing is that we disclose a "minimum balance to earn interest is $1." There's nothing wrong with that disclosure even if that particular tier is currently paying 0%?

Didn't see a response to your question, John. We are running into the same issue. Did you get a resolution?