I need some help understanding some technical wording in Reg Q. Section 217.101(a) states:

Section 19(i) of the Federal Reserve Act and 217.3 of Regulation Q prohibits a member bank from paying interest on a demand deposit. Premiums, whether in the form of merchandise, credit, or cash, given by a member bank to a depositor will be regarded as an advertising or promotional expense rather than a payment of interest if:
(1) The premium is given to a depositor only at the time of the opening of a new account or an addition to an existing account;
(2) No more than two premiums per account are given within a 12–month period; and
(3) The value of the premium or, in the case, of articles of merchandise, the total cost (including taxes, shipping, warehousing, packaging, and handling costs) does not exceed $10 for deposits of less than $5,000 or $20 for deposits of $5,000 or more.

1. Can anyone explain and give an example of what "an addition to an existing account" means? [The 2nd half of (1) above]. I've always understood the premium had to be given at account opening to meet the exemption, yet there is this other timing exception.

Since (2) allows me to give two premiums per year, I must be able to give them after account opening. However, I don't understand what "an addition" means.

2. #2 says I can give 2 premiums a year. Can I give $10 twice or does the total of the two have to be less than or equal to $10?

Thanks in advance.

1. David - come on in and deposit $10,000 to your savings account and I will give you this toaster worth $19.99. That would be an addition to an existing account.

2. Six months later I could do it again and this time give you six loaves of bread (retail value $19.95) to go with the toaster.

I really haven't seen this strategy used in a long time. I think in the old days, people made deposits to savings accounts and left the money there - now savings accounts are as liquid as any other account.

The irony of Randy's example is that it refers to an old practice, and it often involved savings accounts or, in some cases, maturing CDs that customers might add to.

And, of course, the fact that the "addition to" wording is vestigial. It's a hangover from when Regulation Q and the laws it implemented dealt with more than just demand deposits.

BTW, The toaster in Randy's example could be worth $39.95 and there would be no problem, because the deposit is being made to a savings account.

Good point John- that was a bad example - wasn't it.

No. Actually, I think it was the most appropriate example, since it would not have made ANY sense if it involve a DDA. But I also think it shows how the language of the regulation reflects some if its past "life" when it also covered interest-bearing deposits.

OK, you're seeing my point. Can anyone give me a "culturally relevant" example of this wording with a demand deposit account?

Also, I don't think question #2 has been addressed. Anyone know the answer to this one? (Is the maximum 2 X's $5 or can I give $10, 2 different times?)

P.S. Thanks to you "older" guys for blowing the cob webs off of this one.

Well, you could give them a $20 gift for any additional deposit to a demand deposit account over $5,000 up to twice a year. Culturally relevant - well that's what I was struggling with with my last example. It just isn't really a practical approach from a profit point of view and as John pointed out - it is a throw back to when Reg Q was a little broader based.