Section 19 of the Federal Reserve Act of 1913 authorizes the Federal Reserve Board to impose reserve requirements on the deposits of member financial institutions, and it allows the Federal Reserve to define terms such as "deposit", "savings deposit", "time deposit" and "transaction account."
Most Fed guidelines for demand deposit accounts are related to the granting of insurance from the Federal Deposit Insurance Corporation, or FDIC. The Fed backs up deposit accounts up to a specific limit, which is $250,000 per account owner, and requires insured accounts are treated in specific ways.
Definition of a Depository Institution and Deposit Account
To receive FDIC insurance, a commercial or savings bank needs to be classified as a depository institution. These institutions include any commercial or savings bank, any mutual or stock savings bank, any member of the Federal Home Loan Bank System, credit unions and U.S. branches of foreign banks that can apply to FDIC for insurance coverage.
Regulation D of the Federal Reserve indirectly controls the use of demand deposit accounts by requiring how much an insured depository institution needs to keep on hand to meet demand deposit needs. Regulation D also directly defines deposit types under two categories: time deposit accounts and transaction accounts.
Time Deposit Vs. Transaction Account
Almost all demand deposit accounts are categorized as transaction accounts by the Federal Reserve. These accounts permit unlimited third-party transfers and, consequently, require larger-than-normal reserve requirements for FDIC purposes. Time deposit accounts do not have unlimited third-party transfers. Such accounts currently have no reserve requirements and are not as regulated by the Fed.
Processing of Demand Deposits
Under the Federal Reserve Board's Regulation CC and the Uniform Commercial Code, all deposited funds must be made available for withdrawal within a certain period of time. For most deposits into standard deposit accounts, funds must be made available by the business day following the deposit.