Q Due to a competitive labor market, my bank (which is a national bank) is considering offering hiring incentives, including a higher rate on bank employee checking and savings accounts. Are we permitted to offer employees a higher rate on these interest-bearing accounts?
A No. 12 U.S.C 376 prohibits a covered bank from paying employees a higher interest rate on their deposits than it pays other customers on comparable deposits.
Specifically, the statute states that “[n]o member bank shall pay to any director, officer, attorney, or employee a greater rate of interest on the deposits of such director, officer, attorney, or employee than that paid to other depositors on similar deposits with such member bank.”
This means that covered banks may not pay employees a higher interest rate on savings, money market deposit accounts (MMDAs), or interest-bearing checking accounts than is available to the general public for the same account type, nor may they offer a special “employee-only APY” that exceeds the standard published rate for comparable deposits. There is no de minimis exception, no reference to compensation programs, and no carve-out for employee benefit plans in the statute.
Regarding scope, § 376 is part of the Federal Reserve Act and applies to Federal Reserve member banks. All national banks are required by law to be members of the Federal Reserve System, meaning that all national banks are “member banks” subject to § 376. This statutory prohibition does not apply to non-member state banks (e.g., an FDIC-supervised state-chartered bank) or non-bank financial institutions. However, many institutions not expressly covered by § 376 choose to follow its requirements as a best practice.
Section 376 is limited to preventing employees from receiving a higher interest rate than other customers on similar deposits. Note that it does not prohibit fee waivers, lower minimum balance requirements, or higher rates, where the same rate is publicly available to employees and non-employees on the same terms and conditions.
For more information, contact ABA’s Leslie Callaway.
Please note that this section is not a substitute for professional legal advice.
