Our CDs are set up for monthly compounding and monthly crediting back to the CD. However, customers can elect to receive their interest via check or transfer to another account on a frequency of monthly, quarterly, semi-annually, or annually. Therefore, I am trying to determine how our TISA disclosures should read when a customer elects to receive interest and what APY should be disclosed.

We use a forms vendor, but we control the language that prints on the TISA disclosure. Currently, if a customer elects quarterly receipt of interest via check, the TISA disclosure says the following under the Compounding and Crediting section: Interest will not be compounded on this account. Interest will be mailed to you by a check quarterly.

The disclosure also indicates that the annual percentage yield remains on deposit until maturity and that a withdrawal will reduce earnings. However, when the customer elects receipt of interest, the disclosed APY does not appear to be reflecting that assumption as it is lower than the APY would be if interest compounded. For example, we are currently offering a CD with a rate of 2.47% and an APY of 2.50% (assuming monthly compounding and crediting). If the customer elects to receive interest quarterly via check, the APY being disclosed is 2.49%.

So, here are my questions:
1. Is it correct to disclose that interest is NOT compounding when the customer elects to receive it via check or transfer to another account? Or,
2. Should we always disclose that interest is compounded monthly (regardless of what interest option the customer elects) and then specify how customers will actually receive it based on their election (i.e., credited to the CD, mailed via check, transferred to another account, etc.)?
3. Since we disclose that the APY assumes interest remains on deposit, should the APY disclosed always be the APY based on monthly compounding/crediting (even if the customer elects to receive interest in another manner/frequency)?

Any help/feedback on my questions???

Reg. DD 1030.4(b)(6):

(iii) Withdrawal of interest prior to maturity. If compounding occurs during the term and interest may be withdrawn prior to maturity, a statement that the annual percentage yield assumes interest remains on deposit until maturity and that a withdrawal will reduce earnings.

This would suggest that option 3 is correct. (Even more so if they can change their election during the term of the CD.)