When we open a new CD and the interest will be paid out by check, the CD and TIS disclosure states "interest will not be compounded and will be paid to you by check quarterly." Is that correct or should we state the compounding frequency?

They also state, "The Annual Percentage Yield assumes interest will remain on deposit until maturity. A withdrawal will reduce earnings. If interest is credited to another account or paid to you by check, this may reduce earnings and may negate the effect of interest compounding."

You cannot have it both ways.

The instructions in Appendix A, Part I for determining the APY indicate that, unless the bank requires, as a condition of the account, that consumers withdraw interest during the term, the calculation of the APY must assume that all principal and interest remain on deposit for the entire term and that no other transactions (deposits or withdrawals) occur during the term.

If the customer exercises an option to take monthly interest payments by account transfer or check, you'll add language to that effect. But that doesn't change your other disclosures. The APY will still assume compounding and you'll disclose the compounding frequency and the rest of the information required, ignoring the fact that the customer has opted to take interest payouts.

If you offer two different CD types -- one that requires monthly or quarterly interest payouts and one that does not -- you will disclose the former to conform to the required payouts.

Thank you, John, for the explanation.