What are the advantages/disadvantages to the bank for classifying Savings accounts and Money Market accounts as savings instead of just classifying them all as transaction accounts? Couldn't a bank have Savings accounts and Money Market accounts but classify them as transaction accounts and then you don't have to worry if they have excessive transactions?

If you eliminate the seven day withdrawal language, you would effectively turn them all into interest bearing DDA accounts and eliminate the transfer limitations.

It may impact your reserve requirements.

Could you still call them Savings accounts and Money Market accounts if you classified them as transaction accounts?

You can call a pig a horse if you want too.

Reserve requirements are higher for transaction accounts, if I recall correctly.

Ha ha, with my memory these days I may just have done that!!!

However, would this be a violation of Reg D to call a Savings account a Savings Accountor a Money Market account if it was truly a transaction account since they wouldn't be following the intent of the regulation and be limited?

I see MMDA accounts called Premium Checking Accounts (or similar) that are limited to six transactions a month all the time. You can name your products whatever you want too. You just have to classify them appropriately for reserve and other reporting.

Thanks for all the information! I was just curious how this works. Have a great day!

One more question, what if the bank were to change all of their savings and MMA to transaction accounts (disclosing to the customers and realizing it will affect Reserve Requirements), could you still place transaction limitations such as on the savings account - 3 free withdrawals allowed per month, then $1/per withdrawal after that? Would that be a violation of Reg D since it seems to follow the intent of a savings account and not a true transaction account?

Establishing a service charge routine has nothing to do with account classifications.

Thanks rlcarey, I asked this very thing of our compliance consultants and they said:

If the bank restricts withdrawals, it makes it sound like a Reg D savings account and not a reg D transaction account. And I replied:
Do you think it would be a violation of Reg D then to restrict them as such but not classify them as such? And they replied:
Yes because it circumvents the spirit and intent of the law.

Road apples.

The "spirit and intent of the law" was to establish reserve requirements based on the account's characteristics.

That's the kind of response you get from someone who doesn't know the answer.

Have you heard of any other banks doing this? I don't understand reserve requirements (not my area) but our COO thinks it's a good idea. I'm always extremely cautious of making changes like this.

Most banks go the other direction and create shadow savings accounts for their DDA accounts to reduce reserve requirements. You should be more concerned with what your CFO thinks and not what your COO thinks.

I would push really hard to eliminate NOW accounts. I would push really hard to eliminate MMDA's as well.

However, on the second crusade, I would be totally dependent on the CFO's input. There is no, "How does this affect banks answer?" It's "How does it affect this bank?" You have to do the math thoughtfully and carefully.

If you decide to change them to transaction accounts, it will be hard to put the horse back into the barn in the future.

We offered a product called a savings that was a transaction account. We no longer offer that product for new accounts but the existing accounts have not been changed.