I realize that savings accounts are not subject to reserve requirements and customers are limited to 6 withdrawals per monthly statement cycle (paraphrasing the 6 withdrawal stuff to keep this brief).

I seem to recall at my old bank of several years ago that elected to pay reserves on our regular consumer savings accounts and in return we did not have to track or be concerned with the 6 withdrawal limitations. We continued to call it a regular savings account.

Is it possible to offer a savings product to a consumer, pay reserves on the balances in that product and allow the consumer unlimited withdrawals? I'm thinking I've just described a transaction account or NOW account, but I'd like to consider changing my regular consumer savings accounts to pay reserves and unlimited withdrawals and still call it a regular savings account. Can I do that?

I'm pretty sure you can title the accounts accordingly... what matters for the Regulations is that you maintain proper reserve accounts and tracking of those balances.

It may be an issue of confusion though which would leave you "open to regulatory criticism." Not because it's not technically right, but as you yourself said it might as well be called a NOW or transaction account.

Some additional thoughts to ponder... Fraud, a "savings account" would be noticed after 6 transactions, so telling a customer that they are in a savings account that happens to have fraud with more than 6 transactions in a month might come back to bite you... Which leads me to start thinking UDAAP... in terms of how hard that later bite might be...

Cheers!

Thanks AF!

If you treat your savings accounts for reserve purposes as transaction accounts, you have basically created a variety of NOW accounts and with that, the ownership limitations.

Paying reserves to avoid pre-authorized transaction tracking is not very cost effective, is it?

You could also be affecting your Call Report.

Would anyone be willing to provide a citation for where I can find the penalties to the bank for not having a monitoring program in place for excessive transactions? I do realize this also affects reserve, and I am struggling to find all of the possible penalties associated with allowing savings accounts to be used as transaction accounts. Thanks in advance!

The biggest theoretical penalty would be that without a monitoring system, they might be considered transaction accounts and the regulators could impose back-reserves on the bank for the whole portfolio in which you are not monitoring transactions. However, in reality, you would probably most receive criticisms in your exam report and if they really wanted to penalize you, impose CMPs under other provisions of law.

Thanks rlcarey!