A client has been quoted a rate instead of an APY in error. It is not a rate we currently offer, but we are going to honor it. When determining the APY, however, the yield comes to 2.275. Our data processor, relying on Reg DD § 230.3(f)(1)does not carry a rate or yield out to more than 2 decimal places, and rounds to the nearest .01%. So in this case, the client will receive a statement saying that he is earning a yield of 2.28 when he is actually getting 2.275. Is this a problem?
Leslie

Refer to the Reg at 230.3(f):

The annual percentage yield, the annual percentage yield earned, and the interest rate shall be rounded to the nearest one-hundredth of one percentage point (.01%) and expressed to two decimal places.

I read the reg. What I want to know is - if our consumer rate sheets carry the decimal place out three places, but our disclosures only two, and the true APY is the one that states three places, is that a problem? For example - our rate sheet states that we pay 2.275 APY. We are actually paying that. But when we give the client the account documents after they open the account, those docs state that they are earning 2.28. While I understand that it is permissible to round up or down by .01%, is it still permissible if you are giving the client two different pieces of information?
Leslie

You shouldn't be showing 2.275 on your rate sheet if the sheet is provided to the customer. Every APY that the customer gets should be rounded to two decimal places. Even if the actual rate is 2.275, the rate disclosed to the customer must be disclosed as 2.28 per Reg DD.

But ...but ... but...the same section of the reg that states that the APY SHALL BE rounded to two decimal places also states that "For account disclosures, the interest rate may be expressed to more than two decimal places."
HUH? What does this mean? How do these two sections work together? I am feeling VERY dumb about this!
(Be kind -- we're still getting shot at out here!)
Leslie

That's true - you can carry the APY out more than 2 places on the account disclosure, but you can't do that in ads or periodic statements. I know - inconsistencies.

So would a rate sheet given to clients be considered an account disclosure?
Leslie

Your account disclosure would be considered what you give the customer at the time of account opening to fulfill the account opening disclosure requirements to tell them the exact APY along with all the other disclosure requirements. Everyone has different terms for everything, but when I hear ratesheet, I usually think "advertising".

Leslie, you stated that your rate sheet shows a 2.275 APY. If that is in fact the APY and not the simple interest rate, then it should be rounded to 2.28.

I don't think it would be a problem to show the simple interest rate to three decimal places on your rate sheet, but any APY, no matter if it is on a disclosure, a rate sheet, a periodic statement, or an advertisement, must be rounded to two decimal places.

Actually Lee S, the point Leslie was making is that Reg DD is inconsistent. You are not required to round the APY on the account disclosure. So your statement: "but any APY, no matter if it is on a disclosure, a rate sheet, a periodic statement, or an advertisement, must be rounded to two decimal places." is not correct.

Let me clarify one thing - we use a rate sheet that is only provided with our account disclosures, so when I think of rate sheets I think of them as a disclosure. If, however, a rate sheet were provided to customers for informational purposes, they may be considered advertisements rather than disclosures, in which case you may want to err on the side of caution and round the simple interest rate to two decimal places.

Please point to the section in Reg DD that says the APY does not need to be rounded to two decimal places on account disclosures. There is an exception for the interest rate on account disclosures, but I am not aware of the same exception for the APY.

Oh boy - egg on face - and I thought Monday was bad. I humbly ask that you accept my apologies. You are absolutely correct - after all these years you would think that I could discern between the terms interest rate and annual percentage yield.

Hey rl, been there, done that, ate the egg.

Same here. Lucky for me I like eggs.

Special thanks for posting the actual reg, I actually used it today to reply to a director request - we had a scenario in which the same rate was being paid to two accounts, one account's average balance was less, but the APY was more by .01%, due to rounding up versus rounded down.