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#2003797 - 03/24/15 10:46 PM REG DD for CD > 1 year
ckme Offline
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ckme
Joined: Sep 2002
Posts: 248
Three questions about compounding and crediting and disclosures.

First, on the original TISA should compounding and crediting be based on the specific account or the bank requirements? (ie. on our 60 month CD we require interest to be compounded and credit annually) - should it show that or N/A for compounding and credited every one month by check or 12 months for compounding and credited every one month by check?

Second, When would compounding be NA?

Third, on the pre-maturity disclosures that we have to send must we state the specific compounding and crediting for that account based on their election for the original cd or can we use a generic TISA? We do not have rate yet so we put that they need to call for rate and APY.

Fourth, do we have list the specific early withdrawal penalty or can we list them for all terms?

Finally,would anyone be willing to share an example or details on what their notice and disclosure?

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#2003849 - 03/25/15 01:31 PM Re: REG DD for CD > 1 year ckme
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
1. You say you require compounding to be annually on this CD. Leave it that way. However, banks often change the frequency of crediting and the TISA disclosure needs to be specific to the situation. If you read your disclosure, you should see this statement: "the APY assumes interest remains on deposit until maturity. A withdrawal will reduce your earnings." In other words, crediting is not a factor for the APY, but the APY is calculated considering your compounding frequency.

Therefore, (although logical) you cannot say "NA" for compounding. Leave it at "annually". If someone gets a check every month, the crediting frequency must be disclosed as "monthly".

2. Compounding would never be disclosed as NA.

3. Yes.
4. You must be specific and clear about the penalty (and all terms) for the account.
5. I can't help you with this one.
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#2028865 - 07/22/15 04:19 PM Re: REG DD for CD > 1 year ckme
Kathy Brooks Offline
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Kathy Brooks
Joined: Dec 2002
Posts: 95
Question please regarding compounding. On all CD terms interest is accrued with no opportunity to pay to face until its stated maturity. However, customers may choose to credit the accrue interest to a deposit account on any frequency from monthly to annually.

In this case is our compounding frequency on CDs with maturities of less than one year 'at maturity' and, CDs with maturities of one year 'none' and those greater than one year 'annually'

We do require accrued interest to be withdrawn at least annually?

If the interest is assumed to stay on deposit until maturity does that include interest just accrued? I don't equate that to 'on deposit'.

Thanks in advance.
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#2028869 - 07/22/15 04:26 PM Re: REG DD for CD > 1 year ckme
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 80,355
Galveston, TX
You can't assume that interest stays on deposit as you don't allow it.

We do require accrued interest to be withdrawn at least annually? Is this a statement or a question??

What is your question? How to disclose the compounding feature or how to calculate the APY??
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#2028951 - 07/22/15 06:34 PM Re: REG DD for CD > 1 year ckme
Kathy Brooks Offline
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Kathy Brooks
Joined: Dec 2002
Posts: 95
Sorry I wasn't clear..

Disclosing the compounding frequency is where I am confused.

We do require accrued interest to be withdrawn at least annually, either transferred or paid to CD-at maturity only-by customer choice.

Frequency of crediting of accrued interest is customer choice.
Either by transfer to deposit account or check monthly, quarterly, semi annually or annually. If they don't choose to transfer accrued interest it will be paid to the balance of the CD at maturity or at least annually.

Disregarding the customer's choices....I want to think that the bank's compounding frequency is at maturity for CDs less than a year; for CDs of one year it would be 'none' and for those over one year, 'annually'. Am I close?


Thanks again.
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#2028999 - 07/22/15 07:38 PM Re: REG DD for CD > 1 year ckme
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 80,355
Galveston, TX
How can you disregard the customer's choice??? Interest doesn't compound at maturity, the CD is over. Even if the CD is renewed, it is a new CD.
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#2029031 - 07/22/15 08:31 PM Re: REG DD for CD > 1 year ckme
Kathy Brooks Offline
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Kathy Brooks
Joined: Dec 2002
Posts: 95
Guess cause I am confused and just can't say it right in my head.

Thanks I do appreciate it.
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#2029057 - 07/22/15 09:47 PM Re: REG DD for CD > 1 year Kathy Brooks
BowlingQueen Offline
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Joined: Mar 2007
Posts: 2,920
Wisconsin
Originally Posted By Kathy Brooks
Sorry I wasn't clear..

Disclosing the compounding frequency is where I am confused.

We do require accrued interest to be withdrawn at least annually, either transferred or paid to CD-at maturity only-by customer choice.

Frequency of crediting of accrued interest is customer choice.
Either by transfer to deposit account or check monthly, quarterly, semi annually or annually. If they don't choose to transfer accrued interest it will be paid to the balance of the CD at maturity or at least annually.

Disregarding the customer's choices....I want to think that the bank's compounding frequency is at maturity for CDs less than a year; for CDs of one year it would be 'none' and for those over one year, 'annually'. Am I close?


Thanks again.


I'm making some assumptions based on my interpretation of what you've stated above, but I believe the compounding frequency should be "at maturity" for CDs of 12 months or less and "annually" for CDs that are > 12 months (you can't compound less frequently than annually).

It sounds to me like you have other crediting frequencies based on the term of the CD when it comes to "how" the interest will be "paid" to the customer. It is most common at our bank to credit the interest back to the CD, as that allows the customer to earn a higher APY.

Occasionally, we have customers who want the interest credited/paid to them, either by credit to an account or by check. They can do this as frequently as monthly, depending on the term and dollar amount of the CD.

The CD's TISA disclosure would read:

Interest will be compounded: At maturity (or annually if > 12 mos)
Interest will be credited: (whatever frequency they chose or at maturity/annually)

Hope that helps. smile
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#2029095 - 07/23/15 12:35 PM Re: REG DD for CD > 1 year ckme
Kathy Brooks Offline
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Kathy Brooks
Joined: Dec 2002
Posts: 95
Thanks BowlingQueen it certainly does!
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