New York Codes, Rules and Regulations
Title 3 - BANKING
Legal Interpretations
LI 4 - Savings Banks and Savings and Loan Associations
Section LI 4.10 - Payment of dividends upon conversion from a regular to a day of deposit-day of withdrawal account

The department's opinion was requested as to whether dividends could be paid by a savings bank from the beginning of the regular dividend period in the event a regular savings account is converted to a Day of Deposit-Day of Withdrawal account in mid-dividend period.

Section 245(3)(c) provides that a savings bank shall not

"Declare any dividend on any deposit for a longer period than the same has been on deposit or on any deposit withdrawn before the end of a dividend period, except as provided in subdivisions three-a and three-b of this section. . . "

Also, section 245 (3-a) provides that if funds are withdrawn from a regular savings account before the end of a dividend period, dividends for the time during which the funds were on deposit may be paid in two circumstances:

If the withdrawal is made during the "grace days" --the last three business days of any business period or the last four if one of the last three days is a Saturday.

If the by-laws so provide, dividends may be paid at the rate of the last dividend to the first day of the month during which the withdrawal is made.

The preceding provisions indicate clearly that the only dividends which may be paid are those which are mandated or permitted by statute. No provision exists for the payment of dividends on a regular account between the quarterly dividend date and the date of withdrawal other than as provided in section 245 (3-a). Even though funds transferred from a regular to a DOD/DOW account remain in the bank at all times, in fact and according to law, two transactions occur: a withdrawal is made from the regular account and a deposit is then made into a DOD/DOW account.

Accordingly, the department concluded there is no provision of law to permit a bank to treat the withdrawal from the regular account any differently from any other withdrawal from a regular account which is not followed by a deposit into a DOD/DOW account. However, the department expressed the hope that savings banks would not encourage transfers which result in the loss of dividends to the depositor.

The department also expressed the opinion that under section 378 of the Banking Law as amended by chapter 704 of the Laws of 1974, a result opposite to the foregoing would be correct in the case of accounts with savings and loan associations.

DATED: June 1, 1974