Your Bank Has Reasons for Its Check-Writing Limits

Q: I have a problem with my bank, and I don’t know where to turn. My bank offers a money market account on which three withdrawals may be made per statement period.

I know federal regulations require a penalty when that rule is violated, and I have been careful to limit my check writing. However, why should I be penalized when a recipient of one of my checks holds it until the following period before depositing it?

I contend that penalties should apply to when the checks are written, not when they are cashed. Is there some place I can carry my tale of woe, or am I wasting my effort? --R.O.B.

A: You can take your case to the regulators, but it may not do you any good. Based on what you’ve told us, it would appear that your bank was well within its rights.

Let’s explain why your bank acted as it did. According to what your letter indicates, you have a money market savings account that pays a higher-than-usual interest rate in exchange for limiting the number of checks you can write. The check-writing limits were not imposed directly by federal regulators, but are the result of federal regulations dictating the minimum financial reserves a bank or savings and loan must have on hand.

Reserves are non-interest-generating cash that institutions must have in their vaults to cover their deposits. The regulators require higher reserve rates for ordinary checkbook accounts because they can be withdrawn at any time by the account holder.

However, reserve rates for certificates of deposit, which are supposed to be held until maturity, are lower.

In 1980, when federal regulators began allowing banks and savings and loans to offer interest rates competitive with money market accounts, they set a reserve rate for these accounts that is lower than that for typical checking accounts. To protect its reserve, the bank limits check writing on the special accounts.

The penalty for overstepping the limits generally consists of a substantial reduction in interest.

Institutions typically monitor these accounts by keeping track of when checks are cashed because that is how they have traditionally operated. Their machinery is set up to process checks when they are cashed, not to scan checks for the dates they were written.

Having said all that, the question remains: Do you have a case? Maybe. Check the papers you signed when you opened the account and note the exact wording of your agreement. If it says you can “write three checks” per statement period, you could argue that you did exactly that.

However, if it says, as your letter indicates, that you are entitled to “three withdrawals” per statement period, then your argument is considerably weaker because it allows the tally to be kept based on when the checks clear your account.

Still, you might appeal to the basic good nature of your institution’s customer relations manager and ask for a special break.

Some depositors argue that they are such valued customers that the institution should overlook the regulations “just this once.” However, we make no promises as to your chances.

Asking a Grandchild to Redistribute a Gift

Q: When my grandson, who is now 18 years old, was an infant, I purchased stock for him with my son as the custodian. Now I have two more grandchildren and I would like them to share in the original gift by receiving all the dividends generated by the original stock gift.

I have been advised that I cannot do this without my oldest grandchild selling the shares and then redistributing the proceeds among himself and his cousins. This seems ridiculous! Plus, I do not want my oldest grandchild to think that I am taking something away from him. --F.L.

A: We hate to burst your balloon, but, in effect, what you propose would take something away from your oldest grandchild. When you gave him the stock, you didn’t reserve the right to redirect the dividends years later. The stock and the dividends it generates belong to your oldest grandchild, and only he has the right to dispose of them.

What can he do with that stock if he accedes to your desires to redistribute the wealth? According to our experts, he can’t give away the dividends to his cousins each quarter unless he agrees to pay tax on them before he makes the gift. Since it isn’t fair to assume that he should do this, if he wants to go along with your plan, he can either give away two-thirds of the shares you originally gave him, or he can sell them and split the proceeds with his cousins.

He can also put the shares into a special trust or custodial account that would be established to benefit all three grandchildren. To do this, you should consult your lawyer, tax accountant or a qualified financial planner.

As you can see, the bottom line is that you are asking your oldest grandchild to give back a portion of the gift you gave him. He may agree to do this, but if what you gave him is a real gift, he is under no obligation to comply with your wishes.

Government Pensions and Social Security

Q: How can you say, as you did in a column several months ago, that a private pension has absolutely nothing to do with a person’s eligibility to collect Social Security?

I have been told that I am not eligible for spousal Social Security benefits because I receive a state teacher’s pension. So, unless you are using terms that I don’t understand, in which case I think you should clarify them, my private pension has absolutely everything to do with my eligibility for Social Security. --E.J.R.

A: Perhaps the term you have misunderstood is private . By this, the Social Security Administration means pensions from non-governmental institutions.

As a retired schoolteacher, you are receiving a pension from a government agency and are subject to what is known as a “government pension offset” to your spousal Social Security benefits. The result is that the Social Security Administration deducts two-thirds of the amount of your public pension from the Social Security benefits you would otherwise be eligible to receive as a spouse.

If you were eligible to receive Social Security on your own account, these payments, as well, would be reduced because you receive a public pension. However, the amount of the “government pension offset” is far lower than two-thirds.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053