Our disclosures indicate that CDs do not compound interest and that interest is paid at maturity. DepositPro properly calculates the Interest Rate and APY (which can be lower than the interest rate on multi-year CDs due to those conditions).

However, I've notice that some of our CDs DO pay interest on a regular basis, such as quarterly or annually (usually by check, sometimes by transfer to another account). On some occcasions, the interest is added back to the principal. Now I know this means that in those instances we are paying prior to maturity and in some cases we are compounding.

Are there any restrictions (laws, regulations)? Or is it just a difference between what we say and what we do in those cases? I'm not overly concerned about the disclosure as we are giving them a better 'deal' than disclosed.

You should be concerned about the disclosure. Truth in Savings requires you to disclose the rate, frequency of compounding, etc. accurately. If you have some products that compound and pay interest quarterly or annually, you need to disclose those terms. You can't have a 'generic' disclosure for products that pay differently.

I just wanted to follow up on this thread, since we do not compound interest on Certificates of Deposit. However, are you saying that this is a bank policy decision and that no existing regulations would prevent either the compounding of interest or crediting that interest to the account on any type of frequency we want, provided that it is disclosed in the account agreement? Thanks.

You can use a compound or simple interest method and pay the interest whenever you wish (monthly, quarter, annually or at maturity). The TISA for each CD should disclose specifics regarding the account, and obviously the APY will reflect the interest payment method.