We have a tiered rate savings account and I have a request to pay a preferential rate to a customer on this account. In reality, this customer is keeping a balance to meet the lowest rate we offer on this account, and management wants to pay this customer the highest rate.
I am not able to find anything that says we CAN'T offer the higher rate. This customer is not an employee, director, etc.
Can we pay the higher rate at our discretion?

Most certainly. You can negotiate deposit rates. Just be sure that the TISA disclosure you provide represents this agreement.

I'm curious to know how many banks out there negotiate rates. We have always said we quote the best rate up front and will not negotiate, but I think we are in the minority. How about it? How many of you negotiate rates on the Deposit side of your bank?

I think that it is quite common to negotiate on deposit rates on CD's. We use to at all the banks that I have worked, usually only at certain deposit or customer relationship levels. Negotiating rates on savings type products were usually never done due to systems limitaions on pricing at the account level.

If you are a Fed member bank you don't want to give the better rate to the customer if he/she is an employee of the bank. If not an employee, pay whatever you want to pay to keep the relationship.

Of course, keep in mind the Reg B prohibited basis for loans. While there is no Reg B list on the deposit side you don't want to find yhourself giving out better rates on a shown pattern based on race, age, etc. It just wouldn't look right in the local paper if best rates fit a pattern.

We never negotiate on rates unless they are very large like a million dollars for some type of government or municipal agency. Most customers think because they have a large amount of money you will negotiate not to lose them, but we won't and they do leave on occasion. Our board believes that for a few basis points most people will stay where they are and won't take the hassle of leaving.

Add to the list of those who cannot obtain a preferential deposit rate: your officers, directors, attorneys, and agents.

You'd be wise to disclose a certain rate and define anything +/- X% as within the standard. That +/- gives the employees room to negotiate if necessary.

If indeed there are preferential rates, that could come back to haunt you from a RESPA perspective as well.

I hate to bring up an old post, but a recent discussion at our bank has led me to your previous posts and I'd like to get some more feedback to clarify.

Management is proposing to allow branch managers to add an additional 0.05% to our current CD rates in order to retain an existing customer or entice a new customer. (There’s other little caveats about when they can and can’t offer the higher rate, but they aren’t relative here.)

Our TISA disclosure just has the “standard” rates/APYs. Will this customer need to receive a TISA disclosure that reflects the “negotiated” rate/APY?

And second, if this offer can be made available to employees (non-Fed member bank), can it also be provided to Directors? Or is it advisable to just say no employees and/or directors?

Thanks in advance for your assistance.

1. Yes on disclosures

2. I would say no on employees/directors to keep it simple.

This is a reach, but I wanted to add this fact...the customer is also provided with a "CD Receipt" that contains the actual negotiated rate and APY along with the other terms. Would the original CD disclosure with the "standard" rate and APY PLUS the CD Receipt with the negotiated rate and APY suffice? I just wanted some objective thoughts. Thank you for your assistance.

Giving them two rates and two APYs for the same product is never an optimal situation.

You did bring up an old post. For member banks, consider 12 U.S.C. Sec. 376 Rate of interest paid to directors, etc.

Sec. 376 [Federal Reserve Act, Sec. 22] No member bank shall pay to any director, officer, attorney, or employee a greater rate of interest on the deposits of such director, officer, attorney, or employee than that paid to other depositors on similar deposits with such member bank.

Apart from that when you begin paying preferential rates you open the appearance of impropriety. Not a good thing for the insider.

Bringing up this old thread.

When Section 376 says you can't pay a greater rate of interest on deposits to attorneys, does it mean attorneys that are retained by Bank as counsel or does it mean all attorneys regardless of any type of affiliation (or lack thereof) with the Bank?

Hopefully, a guru can chime in!

Thanks in advance!!!

Bank attorney.

Thank you Randy!!!