dkm: I'm not answering your question (just yet), but let me ask a question. You said "Currently, we compound monthly and pay quarterly. The new CORE system will only pay monthly if the interest compounds monthly.. You say you pay interest quarterly, so where is the compounding monthly interest going?
Compounding occurs when the interest earned on an account begins to earn interest itself. The frequency of compounding is the frequency in which interest that has been earned is added to the balance of the account (principal). Whether the earned interest is or is not available for withdrawal is of no consequence to the compounding frequency.
I agree with your new CORE system. If you are compounding monthly, there should be interest to pay out monthly. You don't have to pay it out (it is assumed that it is added to the principal balance), but you could.
MScarn: You're right. They have a contract that should be followed until the CD matures. You also say "in your example, it's working in the customer's favor because they're getting their money sooner. That's not really true as the CD has compounding monthly. The more frequent the compounding, the higher the APY. If they withdraw the money (get it sooner), the true return is reduced as it isn't being added to the principal. Thus the true APY is never achieved because the principal balance stays the same. If that doesn't make sense, I can provide a mathematical example.