Once a week transfer from savings to cover 'approved' overdraft. Can we do it?

Answer by Andy Zavoina
In that you have an approved overdraft plan, Question 2 in the Staff Opinions on Reg. D should apply to you: "If a transfer is made from a savings deposit to repay a prior extension of credit by the bank and the credit was extended to pay checks drawn on a transaction account, the transfer generally would be considered a transfer to repay the loan from the bank and usually would not count toward the sixtransfer limit. In that case, however, the savings account balance could be a substitute for the transaction account balance, and the arrangement must be reviewed to determine whether the savings account should be considered to be a transaction account under section 204.2(e)(5)."

204.2(e)(5) provides examples of transactions accounts and states "Deposits or accounts maintained in connection with an arrangement that permits the depositor to obtain credit directly or indirectly through the drawing of a negotiable or nonnegotiable check ...on the issuing institution that can be used for the purpose of making payments or transfers to third persons or others, or to a deposit account of the depositor."

So, while it may be permissible to do this, you run the risk of classifying your savings account as a transaction account. You will have to determine if the impact is acceptable.

I would also refer you to "FDIC 9227 Whether Certain Deposit Product Violates Prohibition Against Paying Interest On Demand Deposits (12 C.F.R. Section 329.2)" which explains how transfers from a savings account to cover other items presented for payment could be construed as an illegal interest earning demand deposit. Since you have an approved overdraft plan and will restrict the transfers this shouldn't inhibit you, though you should be aware of the transfer frequency should you ever adjust your product.