The Mortgage Tax Escrow Account Act provides the ceiling for how much can be placed in escrow accounts.
No agreement for the mortgage of a single-family residence shall contain any requirement that the mortgagor of the residence shall maintain in any escrow account for the payment of real property taxes or in any escrow-like arrangement for the same purpose any amount of money greater than 150% of the previous year's assessed real property tax upon the real property in regard to which the account is maintained, except in the first year of the mortgage’s life.
Also, note that if the mortgage is subject to RESPA, you may charge “a cushion that shall be no greater than one-sixth (1/6) of the estimated total annual payments from the escrow account” (unless there is a shortage or deficiency). 12 CFR 1024.17(c)(1).
Although, by their terms, those laws apply only to escrow accounts, we believe it is prudent to comply with its requirements for time deposit accounts pledged in lieu of escrow accounts. If customers voluntarily wish to deposit additional money in the certificate of deposit, we would recommend issuing a separate CD.