My FI is considering adding interest earnings to a savings account.

For interest-bearing accounts that are frozen for suspicious activity, are we required to back pay interest in the event we reactivate/unfreeze the account...I know Reg DD says we need to continue accruing if dormant or similar status, but I don't know if that is the same.

On a related note - are we required to backpay interest if we end up closing the account?

We would be sure to disclose the expectation.

Under what legal authority are you doing this? You customer could sue you for wrongful dishonor of any properly payable checks under the Uniform Commercial Code.

If you want to stop paying interest, you cite the appropriate clause of your account agreement that gives you the right to close an account at any time and close the account. Your Reg DD disclosure should already say what happens to accrued interest if an account is closed prior to interest being credited.

What in the world do you mean they are frozen due to suspicious activity. You have a court order requiring that? If you do, then the court order should specify the requirements for maintaining the account.

Well, firstly, the account doesn't accept checks. All transfers into it are explicitly to/from the Checking account. Secondly, it would be instances of suspected fraud in which the account would be placed into a frozen status. A brief investigation over a day or two would transpire and would conclude if the account would be closed or reactivated....

Frankly, I feel a little ridiculous typing it. I understand what you're getting at - that an account is either open and earning interest, or closed and funds sent to the owner.

assuming you are not the person that thought this up but are asking the question as the messenger - simply go back to the question asker and ask them if you really need to spend $100s in equivalent manhours to make adjustments to the account to not pay $.001 in interest over a 1-2 day period...