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Explaining the Truth in Savings Disclosure
On the truth in savings disclosure that I received with my new account, it states: "We reserve the right to at any time require not less than seven days notice in writing before any withdrawal from an interest bearing account." Is this a normal accepted banking procedure? What is the purpose or reason for this? I was told it would only be a requirement if a large amount of money was requested and they did not have it on hand. However, "large amount" was not defined. Should I worry about this?
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 The "reservation of right to require notice" is a necessary element of any account that a bank wants not to be treated as either a time deposit (certificates of deposit) or a demand deposit (non interest bearing checking account).
Think of bank deposit accounts as ranging from no interest spending accounts (checking accounts) at one end of the spectrum, and longer term interest-bearing "nest-egg" accounts (like certificates of deposit) at the other end. Everything in the middle, anything that earns interest, but doesn't have a maturity date, has to have attached to it a reservation of the bank's right to require at least seven days' notice of any withdrawal
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It's a hold-over from requirements imposed on savings accounts after the bank failures of the Great Depression, in order to protect banks from mass withdrawal hysteria in the future. The notice interval used to be much longer. Not too long ago, it used to be 30 days.
The bank representative who told you that the right could be used if someone wanted to withdraw a lot of money at once was correct. That might be how that bank would use it. In actuality, most banks would agree, that they would never consider invoking the right because it could cause more public relations problems and concern than it would be worth.
Published on BankingQuestions.com 4/09/09
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