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#2253031 - 04/27/21 02:55 PM Negative Interest Rates - APYE
YHWB Offline
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If a financial institution paid negative intertest on a deposit product, wouldn't the APYE also be negative? Can you point me to the Regulation or Commentary that discusses this topic?

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#2253038 - 04/27/21 03:23 PM Re: Negative Interest Rates - APYE YHWB
BrianC Offline
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Since I've never seen this in the US and certainly the framers of Regulation DD didn't envision this scenario, I think you'll be hard pressed to find any guidance.
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#2253039 - 04/27/21 03:24 PM Re: Negative Interest Rates - APYE YHWB
Skittles Offline
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I'm curious - how do you have negative interest? Is this due to maintenance fees?
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#2253040 - 04/27/21 03:29 PM Re: Negative Interest Rates - APYE YHWB
BrianC Offline
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Skittles, maintenance fees cannot result in a negative APYE. Unlike the APR which includes prepaid finance charges and fees, the APYE is based solely on the interest earned during the applicable period. Fees aren't even discussed in the definition of the APY calculation in Appendix A.

"The annual percentage yield measures the total amount of interest paid on an account based on the interest rate and the frequency of compounding. The annual percentage yield reflects only interest and does not include the value of any bonus (or other consideration worth $10 or less) that may be provided to the consumer to open, maintain, increase or renew an account."
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#2253042 - 04/27/21 03:40 PM Re: Negative Interest Rates - APYE YHWB
YHWB Offline
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Thank you Brian. Would an early withdrawal penalty be consider a fee? Or included in the APYE calculations?

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#2253044 - 04/27/21 03:43 PM Re: Negative Interest Rates - APYE YHWB
YHWB Offline
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Last question, if, due to timing of an account being closed, the closing APYE is significantly skewed. Is it allowable to vary from the calculation so as not to confuse the consumer?

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#2253045 - 04/27/21 03:44 PM Re: Negative Interest Rates - APYE YHWB
Skittles Offline
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Thanks Brian - this is good information - and hopefully I'll never need to use it.
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#2253046 - 04/27/21 03:49 PM Re: Negative Interest Rates - APYE YHWB
rlcarey Offline
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An early withdrawal penalty is a fee and how would an account being closed skew the APYE since it is based on the days in the statement cycle??
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#2253048 - 04/27/21 03:55 PM Re: Negative Interest Rates - APYE YHWB
BrianC Offline
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APY = 100 [(1 + Interest/Principal)^(365/Days in term) -1]

As you can see in the APY formula, there are no early withdrawal penalties included in the calculation. If an account is closed early, there would be fewer days in the "Days in term" of the formula.

Remember that in your initial disclosure for a CD 1030.4(b)(6)(iii) requires that you disclose that the initial APY disclosed assumes that interest remains on deposit until maturity and withdrawals prior to maturity will reduce earnings.
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#2253052 - 04/27/21 04:16 PM Re: Negative Interest Rates - APYE YHWB
YHWB Offline
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Thank you Brian.

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#2253067 - 04/27/21 06:40 PM Re: Negative Interest Rates - APYE YHWB
Richard Insley Offline
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Originally Posted by YHWB
If a financial institution paid negative intertest on a deposit product, wouldn't the APYE also be negative? Can you point me to the Regulation or Commentary that discusses this topic?
Section 1030.2(n) defines "interest" as "any payment to a consumer or to an account for the use of funds in an account, calculated by application of a periodic rate to the balance...." If you post a transaction that is negative, I wouldn't call that "interest" by any commonly used definition of that term, and the Reg. DD definition clearly does not consider it "interest." If you enter $0.00 interest in the Reg DD formula Brian provides, then the APY will also be zero.
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#2253081 - 04/27/21 08:24 PM Re: Negative Interest Rates - APYE YHWB
rainman Offline
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Conceptually, how would a bank "pay" "negative interest"? (As Richard notes, it's clearly not "interest" under the regulation, so you might have UDAAP or TIS "misleading" troubles if you referred to it as negative interest.) The bank is actually charging the customer, not paying the customer.

If the bank is going to charge customers for maintaining deposits, that almost certainly would have to be treated as a fee. As such, you would have to disclose the amount of the fee or an explanation of how the fee is determined (i.e. % x balance). And you'd have to give a notice of change in terms before imposing the fee.

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