Regulation Q

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Regulation Q is a United States government regulation that put a limit on the interest rates that banks could pay, including a rate of zero on demand deposits (checking accounts). Section 11 of the Banking Act of 1933 (12 U.S.C. 371a) prohibits member banks from paying interest on demand deposits, which is implemented by Regulation Q (12 CFR part 217).

The imposed zero rate on demand deposits encouraged the emergence of money market funds and the growth of substitutes for and alternatives to banks. Regulation Q ceilings for savings accounts were for the most part phased out in the early 1980s by the Monetary Control Act of 1980. Regulation Q was put in place by the Glass-Steagall Act of 1933. The key provision of Regulation Q that remains is that banks under Regulation Q cannot pay interest on checking accounts.

Banks also found a variety of ways to get around Regulation Q restrictions and compete for deposits. These include creating Negotiable Order of Withdrawal accounts and money market accounts which are not considered checking accounts.

Regulation D was modified to include portions of Regulation Q, which governed (among other things) the type of entities that may own/maintain interest bearing NOW accounts. Regulation Q no longer exists as it once did; all aspects of the regulation are now part of Regulation D.