Can someone please give me a clear idea of the difference between stepped rate accounts & tiered rate accounts?

An example of a tiered rate would be where you get paid one interest if your balance is under $2500 versus another interest rate when your balance is over $2500.

A stepped rate account is when you get paid a certain interest rate until XX date and you then get paid another interest rate after XX date.

Tiered rates are when you earn a rate if the balance falls within a tier($0 - $5000, $5001 - $10,000) etc. Stepped can be a number of things one might be split rate accruals, where a deposit account could for example earn ZERO from $0 to $1000, and rate A for funds from $1001 to $5000, an rate B for funds from $5001 to $10,000, and rate C from $10,001 to $50,000, and rate D for all funds above $50,001. In this example the customer would recive 5 different rates of interest on one account.

wpdcad - What you have described is another version of a tiered rate account. Refer to the definitions in Reg DD:

230.2(s) Stepped-rate account means an account that has two or more interest rates that take effect in succeeding periods and are known when the account is opened.

(t) Tiered-rate account means an account that has two or more interest rates that are applicable to specified balance levels.

Dang, Randy, too slow again.

My bank is considering Tiering Method B for a specific product, which looks complicated. Does anyone have a real example of what the TISA would look like with full disclosures?

The main difference is that you have to list a range of APY for each tier you offer. In simple terms, the APY varies based on the dollar amount in the account.

For example, let's say you have 3 tiers.

Tier 1 applies from $0.01 to 10,000.
Tier 2 applies from $10,000.01 to $20,000
Tier 3 applies for $20,000.01+

For ease of communication, lets not run real number but talk in simple terms. Lets assume:

Tier 1 gets 1%
Tier 2 gets 2%
Tier 3 gets 3%.

What happens is your first tier doesn't have a range as all funds get 1%. It starts to get tricky, however, on tier 2. What happens is that when you are just barely into Tier 2, your APY is almost the same as Tier 1 though the APY increases as you add more funds into the Tier 2 rate. For example, if you have $10,001 in the bank, $10,000 gets a rate of 1% while $1 gets a rate of 2%. When averaged, the rate is barely over 1%. That is the first part of the range in Tier 2. The last part of the range would assume a full amount in tier 2, such as $20,000 in our example. With $20,000, you have the first $10,000 getting 1% and the second $10,000 getting 2%, which without doing the actual math (for communication purposes only) could come out to something like 1.5%. You then have to do basically the same thing for Tier 3, but the rule says you can pick your high-end cap on the last tier and I have typically used $1,000,000.

The result is that you must provide each APY range for TISA purposes (both advertising and disclosures), which could look something like this in our hypothetical (nonmath) example:

Tier 1: 1% APY
Tier 2: 1.01% APY - 1.5% APY
Tier 3: 1.51% APY - 2.92% APY (again, I didn't run the numbers, but the high end gets closer to the 3% when you use $1,000,000 as your top tier)

The trick, of course, is to correctly calculate this which I have always done by building an Excel spreadsheet.

Thank you. I did find a model in Appendix B and your explanation was helpful. Guess I was hoping the system would make the calculations and it not be a manual task.

I have always used Excel to make the calculations as I've typically looked at this from an audit perspective. It takes a bit of work, but once you build it, it isn't difficult to manage with rate changes.

I am working on building an excel file but are there any templates out there anyone has found so I can verify my work?

Watch out for the type of Method B tiered rate that pays, for example, 2.00% on balances up to $25,000, and 0.25% on the second tier from $25,000.01 and up. In that case, the second tier APYs will start near 2.00% and get lower as you approach the arbitrary high end.