When we disclose a 182 day CD (or any CD with a term less than 1 year), if the interest rate is e.g. 5.91% the TIS disclosure will show 6% APY. But actually on a six month we did not pay 6% APY. If the customer had left it for a year he would have gotten 6%. Is this the proper way to disclose this, and can we just tell the customer he would have to leave it for 1 year to get the 6%; or do we have to give an APY for the 6 months?

Yes, this is the proper way. Remember APY = ANNUAL percentage yield, or what the CD would have earned it if had been left for a year.

The APY is not perfect as a measure for comparison shopping, but it is the best we have (and we have to use it, besides!) When you give an APY for the six-month CD, you are annualizing the interest when you apply that exponent 365/182 in the formula.

What if a bank advertises a rate for the six month period as a special and then has the CD automatically renew an a lower rate for the next six months.

Example: 5.18 rate which would be a 5.25%APY for the initial six months and then it renews at 4.75% which would result in a 4.81% APY.

Would the bank want to advertise a blended rate that would be equal to 5.03%APY (I just took the 5.25 APY and the 4.81%APY and divided by two). Not sure if it is that easy, but I am sure someone out their may have the means or way to calculate.

I am basing on the APY having to be a blended rate based on Reg D 230.8(b)#2.

Do you know the rate at the 6 month renewal at the time the account is opened? Generally not so your system will 'assume' the rate is constant.

The special rate is a limited offer and offered seperate from the normal posted rates. The normal posted rate would be at 4.75% for six months, with this being the rate paid for CD's maturing under the normal tiered terms arrangement (Example 6 months CD purchased in January @4.50 will receive the rate of 4.75% for the next six months.

We know that the rate will not be the same 5.18% rate for the next six months since the posted rates are different than this special offer.

This would be like any CD written less than 12 months in that the exact rate for the next period is not known. I'm not sure if you could state that a limited time special offering is going to be around and that we will change the tiered rate structure to equal the 5.18% rate upon renewal

So, as Skittles' question implies, your APY would be calculated based on the original rate.

I was going by this and reading your reply it would not appear to apply:

Reg D commentary 230.8(b) 2. Stepped-rate accounts. An advertisement that states an interest rate for a stepped-rate account must state all the interest rates and the time period that each rate is in effect.

Since the actual rate is not set for the next six months, you stick with the original rate? On th eadvertising it states that the CD will be renewed using the tiered rate postings. The confusing part is that there is a current published rate for the same term used mainly for renewal CD's and then a special limited edition rate. When the contract is drawn, it is more likely the customer would receive the published rate for the renewal CD instead of the "teaser rate"? The contract also states that the rate paid will revert to the tiered rate posting.

This