We have a new savings product with tiered interest rates. We offer a higher interest rate and APY for balances over $25,000. Now the bank has decided to put a $1,000,000.00 cap on the allowable balance the customer can maintain in this account AND the customer can have only 1 of these type of savings accounts. Management doesn't want the customer to open five $1,000,000.00 accounts.
HELP--- Can we put a cap on the amount a customer can maintain in their savings account? Can we limit the customer from opening more than one type of savings account? How do we disclose this??

Banking with you is not a "right". I don't see why you couldn't limit the amount or number of accounts. Be sure to indicate the limit is based on the initial deposit, else interest accrual would put them over the top and in violation of your contract/disclosure if it is reinvested in the same account.

Andy, currently we do not disclose anything regarding the cap on the deposit balance. I don't recall us having an account with a limitation on deposit balance. How would we disclose this??

For this new product you have to disclose it, perhaps as a transaction limitation.

I'd be interested to know WHY you would have a cap on the amount deposited as, assuming that you are in business to make money, you must be paying your depositors less than you can make lending it out? Isn't any (clean) money good money?

I would say that there is a risk that you'll irritate your rich customers who'll say "If my money isn't good enough for you I'll take it all my business to a bank where my money is wanted".

Andy, I have one more question. We began offering this new savings product on January 3, 2003. There were no $1,000,000.00 deposit balance limitations or a limit to the number of this type of savings accounts the customer could have. Do we have to redisclose (new limitations) to the customers that opened this new product since January 3rd?

OK, I know that everyone else on this thread is wondering, soooooo, I'll ask. What rate are you paying on balances over $25,000?

It's probably a teaser rate or at least a very attractive rate which can sometimes add up to more than your earnings on deposits. Hence the reason to limit the account balance to avoid large losses.

LOL Umm ya, just how much are you paying? I can send a wire....

A cap also discourages too much "hot money" controlled by one depositor. All you need is for the one depositor to get spooked by a downturn in rates, and you lose a raft of deposits. I've seen a lot of banks cap accounts at $100K or $250K.

Because transaction limitations (§230.4(b)(5) Any limitations on the number or dollar amount of withdrawals or deposits) is a required disclosure and a change may be adverse to the consumer (now there is a limit), I would say a redisclosure is required. Otherwise you could not restrict the deposit to under $1MM.

Dawnie, save the wire time and expense. All that BSA reporting would be such a bother. Interest on the chump change you'd put there is hardly worth your time.

Heh Heh Andy...they'd probably do a SAR on me too. Wires from Alaska....fishy at best!