Hi, our marketing department wants to do a special promotion, as follows:
• Reward students for good grades - $1 per A per quarter
• Deposit into a minor/youth savings account
• No minimum balance required
• No minimum time the funds need to stay in the account

My questions are:
• Since this is a savings account and not a demand deposit account, do we have to be concerned with Reg DD?
• Since this payment (bonus/ premium/incentive) is NOT based on “opening, renewing or increasing an account” or “as compensation for the use of funds constituting a deposit”, do we have to treat it as “interest” and report it on a 1099-INT or can we treat it as miscellaneous income and it be reportable on 1099-MISC (with a $600 exclusion) ?
• Are there any disclosure issues we need to be concerned with?

Thanks!!!

Regulation DD is essentially a disclosure regulation, and doesn't speak to your ability to offer this promotion. You may be thinking about Regulation Q, which limits deposit premiums, but only on demand deposit accounts. You're on safe ground on both regulations here.

I do think that these payments fit the definition of "bonus" under Regulation DD, however, to the extent that they are very likely to exceed $10 per year per account. Accordingly, if you advertise this program (why bother with it if you don't advertise?) you will need to comply with the Reg. DD advertising rules in section 230.8.

I will let someone else speak to the question of IRS rules on whether these payments are considered interest.

Thanks! Anybody have any input on the 1099-INT or 1099- MISC issue?

1099MISC

We started a similar program this year. We gave credit for both As and Bs because try as they might, some kids just can't get an A. Be sure you know what you're getting into. We have 7 locations (160m bank) in 5 communities. If I'd have had to give out a dollar for every A and B, I would've spent over $2,000 in just the first semester.

Here's a link to our program. First National Beatrice "FNB Pays for Grades" program

Impressive program kb - thanks for the link!

Thanks for the link. Interesting program - what were some of the "free goodies" given - did the merchants give you a good deal on them? Was the education program well attended? Would you run this program again?

the freebies include a movie ticket, a free 24 oz soda, a free ice cream sundae, free skating pass, etc.

It is an ongoing program. We did the first drawings for scholarships Feb. 28th. We'll do another in June and the Grand Prize drawing in August. We've gotten a lot of good community PR for the program.

Thanks!