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Reg Q - Paying Interest during the Grace Period

Answered by: 
Randy Carey

Question: 
Our bank discloses in the customer contract that it does not pay interest when closing a renewable CD in its 10 day grace period. However, if the bank pays interest during the grace period for a closing withdrawal on an exception basis would that be considered a violation of Regulation Q?
Answer: 

Footnote 1 to Regulation Q states:

A member bank may continue to pay interest on a time deposit for not more than ten calendar days; (1) Where the member bank has provided in the time deposit contract that, if the deposit or any portion thereof is withdrawn not more than ten calendar days after a maturity date (one business day for "IBF time deposits" as defined in Section 204.8(a)(2) of Regulation D), interest will continue to be paid for such period; or (2) for a period between a maturity date and the date of renewal of the deposit, provided that such certificate is renewed within ten calendar days after maturity.

IMHO, if you don't contract for the payment, you can't pay it as it is now considered a demand deposit. Option 2 will not apply because the maturity and renewal date is the same on an autorenewal CD.

First published on BankersOnline.com 3/03/08

First published on 03/03/2008

Filed under: 
Compliance
Filed under compliance as: 
IT
Renewal

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