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#2055852 - 12/28/15 07:24 PM Tiering Method B-APYWIN
Bec Offline
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We are trying to roll out a money market special that has the first 6 months fixed at an interest rate and then drops back down to our base rates for the rest of the year. There are tiers involved. I am certain that we are using tiering method B for our APY calculations but I am flummoxed as to how I can verify if our low/high APYs are correct using APYWIN due to the first 6 months at the higher rate and the last 6 months being different? What am I missing?
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#2055882 - 12/28/15 09:25 PM Re: Tiering Method B-APYWIN Bec
rlcarey Offline
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Are the rates to which it drops back down variable rates??
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#2056050 - 12/29/15 06:31 PM Re: Tiering Method B-APYWIN Bec
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No, it is one rate for all the tiers when it drops back down.
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#2056190 - 12/30/15 03:17 PM Re: Tiering Method B-APYWIN Bec
rlcarey Offline
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No. I meant, when it drops back down, does it drop down to a fixed rate (you have to give prior notice to change them) or are those rates variable rates (you change them when you want too).
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#2056316 - 12/30/15 10:25 PM Re: Tiering Method B-APYWIN Bec
Bec Offline
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Yes
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#2056336 - 12/31/15 12:45 PM Re: Tiering Method B-APYWIN Bec
rlcarey Offline
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Yes? I put forth two options. Which one is it???

That will determine how you do your calculation.
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#2056377 - 12/31/15 04:59 PM Re: Tiering Method B-APYWIN Bec
Bec Offline
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I am so sorry. when the rate drops down we disclose that we can change the rates when we want too.
Thank you for bearing with me.
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#2056463 - 01/01/16 01:02 PM Re: Tiering Method B-APYWIN Bec
rlcarey Offline
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OK, so you would have to calculate your APY using the following rules:

Variable-rate accounts with an introductory premium (or discount) rate must be calculated like a stepped-rate account. Thus, an institution shall assume that: (1) The introductory interest rate is in effect for the length of time provided for in the deposit contract; and (2) the variable interest rate that would have been in effect when the account is opened or advertised (but for the introductory rate) is in effect for the remainder of the year. If the variable rate is tied to an index, the index-based rate in effect at the time of disclosure must be used for the remainder of the year. If the rate is not tied to an index, the rate in effect for existing consumers holding the same account (who are not receiving the introductory interest rate) must be used for the remainder of the year.

For example, if an institution offers an account on which it pays a 7% interest rate, compounded daily, for the first three months (which, for example, contain 91 days), while the variable interest rate that would have been in effect when the account was opened was 5%, the total interest for a 365-day year for a $1,00 deposit is $56.52 (based on 91 days at 7% followed by 274 days at 5%). Using the simple formula, the annual percentage yield is 5.65%:

APY = 100 (56.52/1,00)

APY = 5.65%

The APYWIN program, as far as I know will not calculate step rate multiple tier accounts when the interest rate reverts to a Tiering Method B formula. You will have to do this manually. So you calculate based on the low and high balance in each tier.
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#2057305 - 01/07/16 11:22 PM Re: Tiering Method B-APYWIN Bec
Bec Offline
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Thank you very much for this.
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#2140657 - 08/03/17 04:42 PM Re: Tiering Method B-APYWIN Bec
justsayjulie Offline
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Reviving this thread...we intend on offering a 6-month promotional rate on our variable rate accounts, and understand we need to calculate APY using the stepped-rate process Randy listed above. The snag we've encountered is that our system cannot generate a TISA reflecting that stepped-rate APY. Management is not keen on making the promotional period for 1 year so the APY would be correct on the TISA and is looking for alternatives. Has anyone else encountered this, and if so, how did you handle it?
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