We have a fixed rate, single maturity CD product type, typically used when a client asks for an oddball term (ex. 52 days). For this product type, our system is set to disclose compounding as "no compounding," regardless of the term. A customer service rep used this product type to open a 6-month CD for a client yesterday, in which interest will be paid every 3 months, capitalized. I thought I had convinced myself that disclosing "no compounding" was okay on this particular CD, but then I read (and re-read) what David Dickinson provided at the end of this thread:

https://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=581112

I'm back to square one, wondering if we disclosed compounding incorrectly for this client. Help, please!

in which interest will be paid every 3 months, capitalized.

That is the definition of compounding.

Thank you, Randy.

The key to this whole issue is this:
Compounding and annual percentage yields are disclosed on the assumption that the customer will leave the interest in the account until maturity. This is true even though you know the assumption is wrong. Why? Because Reg DD says the APY assumes interest remains on deposit until maturity.

If you are paying interest every 3 months, then you are compounding the interest (as Randy stated). You are also to assume it is added to the principal (capitalized) even if you cut them a check for the interest. Thus, you should report quarterly compounding in your example.