In the past we had a referral promotion which included a $20 bonus to customers opening an account, with no minimum balance or activity requirement. We paid the bonus at account opening.

Now we want to offer a $25 bonus to customers who open up a checking and make a deposit of $500 or greater within 120 days and has 15 debits within the 120 day period. For interest bearing accounts I think this is ok if I get all of the requirements disclosed. For non-interest bearing accounts, I can not meet the requirements to not treat this as interest, since we require the deposit and debit transactions before we can pay the bonus.

I am told a lot of other big banks do this type of a promotion for non-interest bearing accounts. I don't want to jump just because other institutions offer this.

Is there a way to legally provide the bonus to non-interest bearing accounts?

Are there any problems with offering to interest bearing accounts?

15 debits within the 120 day period.

That takes it out of the IRS definition of interest. But there is also no longer a prohibition on paying interest on demand deposits since the repeal of Regulation Q.

Does the deposit requirement make it ok?
I thought they added the Reg Q into Reg DD?

Would anyone be able to provide me with any documentation to support we can pay $25 after they make a deposit and have the debits, on non-interest bearing and interest bearing accounts?

(f) Bonus means a premium, gift, award, or other consideration worth more than $10 (whether in the form of cash, credit, merchandise, or any equivalent) given or offered to a consumer during a year in exchange for opening, maintaining, renewing, or increasing an account balance.

How does having 15 debits processed again the account in 120 days meet this definition?

We would only offer this program to new customers. Would the deposit requirement fall under increasing the account balance? Would the debit requirement fall under maintaining?

To be clear, (and this may be what you're hung up on), the $25 will not be a bonus, nor will it be interest under Regulation DD because it's dependent on the debit activity (so it doesn't meet the definition of bonus) and isn't calculated by applying time and rate to a balance (so it doesn't meet the regulation's definition of interest).

But it will be interest as far as the IRS is concerned, so you will need to report it on a 1099-INT at year-end unless the depositor is exempt from 1099 reporting. Correction -- Incorrect.

No, the debit requirement doesn't fall under "maintaining the balance."

We are offering a $25 bonus to those who open personal checking accounts on a certain day. There are no additional requirements such as debit activity, deposit, or minimum balance requirements in order to receive the $25. Of our four personal checking accounts, three earn interest, and one does not. If I am understanding correctly from the posts above, the $25 is a bonus (because it's given for opening an account) for the 3 interest-bearing accounts and will require a 1099-INT. In regard to the one non-interest bearing account, will the $25 bonus not be considered interest because it isn't calculated with a rate and time so no 1099-INT will be required?

Prior to the repeal of Reg Q you could not give a bonus on a non-interest bearing account. However, now that you can, the FL definition of a premium or bonus has not changed so all of these accounts require a 1099-INT if the premium paid for opening the account is greater than $10.00. Also remember that for Reg DD the premium is not included in you APY or APYE calculation.

Thank you, Brian!