Transaction accounts are defined in section 19 of the FRA and in Regulation D as an account from which the depositor or account holder is permitted to "make transfers or withdrawals by negotiable or transferable instrument, payment order of withdrawal, telephone transfer, or other similar device for the purpose of making payments or transfers to third persons or others...."
Applies to:
- demand deposits
- negotiable order of withdrawal (NOW) accounts
- share draft accounts
Time deposits and savings deposits are excluded from the Regulation D definition of transaction account.
Demand deposits are deposits that are payable on demand, or issued with an original maturity or required notice period of less than seven days, or a deposit representing funds for which the depository institution does not reserve the right to require at least seven days' written notice of an intended withdrawal.
Types of demand deposits:
- checking accounts
- certified, cashier's, teller's, and officer's checks
- traveler's checks and money orders that are primary obligations of the issuing institution.
NOW accounts have three mandatory characteristics.
a NOW account must be one where the depository institution has reserved the right to require at least seven days' written notice prior to the withdrawal or transfer of any funds in the account.
a NOW account must be subject to check, draft, negotiable order of withdrawal, share draft, or other similar item for the purpose of making transfers to third parties.
NOW accounts may only contain funds belonging to individuals, nonprofit organizations, or public funds of governmental units.