Must interest on a CD be credited or paid out at least annually when the term of the CD is greater than 12 months? I feel like I read this some years ago but I cannot find it again.
Interest does not have to be credited at least annually. §1030.7(b) says: Compounding and crediting policies. This section does not require institutions to compound or credit interest at any particular frequency.
However, I believe (didn't look it up to verify) that you have to issue a 1099 each year even though interest wasn't actually provided to the customer. Maybe someone with a better knowledge of IRS rules can verify or correct me.
Yes, I believe the IRS considers the unpaid interest as Original Issue Discount (OID). The interest amount needs to be reported annually on IRS Form 1099-OID. The instructions for Form1099-OID are located at:
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