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Reg Q Confusion & Competitor's New Account Promo

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I recently received a promotional letter from a large competitor bank in my neighborhood offering $100 cash for opening a new checking account, and an additional $25 if you open a savings account. I am so confused by Reg Q that I can't figure out how they are doing this. They require $250 to open the checking account to qualify for the $100 incentive. They also require $100 to open the savings to receive the $25 incentive. How does the Reg Q apply to this situation?

First you have to determine whether the "checking" account being offered is a true demand deposit account. If it's not (for instance, it's a NOW account), Regulation Q won't apply at all. And the savings account isn't an issue, since Regulation Q only prohibits interest on demand deposit account.

If the checking account is a true demand deposit, the institution may be looking to Section 217.101(b) as its "out." At least one FRB attorney has said that if there is either no deposit amount or no term of deposit requirement (in the example you've cited, there might be no requirement for the account to stay open for any specified time), the $100 would not be considered interest for the purposes of Reg. Q (it would, however, be interest for IRS purposes, and it would be considered a "bonus" under Regulation DD -- Truth in Savings).

First published on 4/21/08

First published on 04/21/2008

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