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.
John S. Burnett
Fighting for Compliance since 1976
Bankers' Threads User #8