Hiring Incentives, Employee Deposit Rates Prohibited
Summary
The ABA Banking Journal's Compliance Question of the Month addresses whether banks may offer hiring incentives tied to employee deposit rates. The column clarifies that such practices are prohibited under federal banking regulations governing deposit-taking activities.
What changed
The ABA Banking Journal Compliance column addresses a common question from member banks regarding the permissibility of offering hiring incentives linked to employee deposit rates. This type of arrangement would essentially constitute an indirect way of paying interest on deposits, which is generally prohibited under federal banking law.
Banks should ensure their human resources and deposit-taking practices do not intertwine employee recruitment incentives with deposit account offerings. Any programs designed to attract employee deposits as part of an employment package would require careful review to avoid violating interest-on-deposits prohibitions.
What to do next
- Monitor ABA Banking Journal Compliance for updates on deposit regulations
- Consult compliance counsel regarding employee deposit programs
Archived snapshot
Apr 13, 2026GovPing captured this document from the original source. If the source has since changed or been removed, this is the text as it existed at that time.
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Compliance question of the month: April 2026
Some hiring incentives are flexible; employee only APYs are not
April 13, 2026 Reading Time: 2 mins read 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.
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