I need help. I greatly prefer credit deals.

Situation: A NOW account with 2.96% being offered for the first 6 months, after which it will pay the going rate at that time.

Do we calculate the APY with 2.96% for the 6 months, then what the current rate would be today for the remaining 6 months to come up with an APY? That is what I get from App. A but marketing is arguing. They say that sounds like a time account, but we have to assume one year to calculate the APY. We can't just calculate the APY using the 2.96% rate that is only good for 6 months, can we? That would inflate it as if the 2.96% were offered for 12 months.

Thank you!

This is a stepped-rate product. Step one is the 2.96% for the first 6 months. Step two is the "normal" rate today, assuming that this will not change over the 12 months to the end of the one-year assumed period.

So, if your non-bonus rate for this product is today 1.00%, you figure interest for 6 months at 2.96%, then add interest for the balance of the year at 1.00%, and then apply your APY formula. You'll obviously get a rate somewhere around 2.00% APY (about half-way between).

But note: This works if each account opened gets 6 months at the introductory rate and then reverts to the normal rate. But if your introductory rate period ends on a specific date (say July 16, which is 6 months from today) and all accounts opened in the next three months will change to the normal rate on 7/16, you have a nightmare on your hands.

That's because the number of days the intro rate will run gets smaller each day, and the number of days for the normal rate gets larger. So the APY changes every day.

Thanks, John. That is what I thought. Fortunately, the premium rate does not end on a specific date.

My pleasure. Now all you have to do is convince your marketing people that you have to use the full year's interest. Your "ammo" can be found in Appendix A, in the first paragraph under heading "A. General Rules" and reads as follows:

Except as provided in Part I.E. of this appendix, the annual percentage yield shall be calculated by the formula shown below. Institutions shall calculate the annual percentage yield based on the actual number of days in the term of the account. For accounts without a stated maturity date (such as a typical savings or transaction account), the calculation shall be based on an assumed term of 365 days.

I believe I have convinced them, although they did bring some ads of "other banks doing it wrong"! We are trying to figure out what needs to be done to be able to advertise 3%- if they actually pay 3% for 6 months, and state the blended APY and the actual interest rate they will get for 6 months, rather than pay 2.96, which they thought was a 3% APY. The 3% is what they want to get to, but they can't make the interest rate more prominent than the apy, which has to be blended! They wanted to trumpet the 3% figure.

Given the way the account is designed and the 6-month term of the "teaser" rate, they'd have to be paying a lot more for the teaser than 2.96% interest rate to get a blended APY of 3.00%. What is your standard rate today?

Not anywhere near what they would have to pay to end up with an apy near 3% doing this the right way! I think all they can do is mention the interest rate they are paying for the first 6 months the account is open and explain the apys...I keep looking and have yet to find one bank doing this correctly.

Just don't forget what your parents used to say when your marketing department points out that "everyone else is doing it." You remember -- something about following "everyone else" when they jump off the Empire State Building.

I know I'm preaching to the choir when I say your regulator won't acknowledge the "everyone else is doing it" defense.

When they showed me the other banks ads, they did say, "I know, I know, my mother would have said something about a bridge"...before I opened my mouth!

Kathleen- I've presented Internet compliance seminars for 8 years, and the highlight has always been the live examples of other banks violating all your favorite laws and regulations on their websites. There has never been a shortage of examples! Other banks do things wrong all the time......and then there are credit unions.

It's funny that this came up this morning. My mother called me (she's almost 78) about another bank's advertising a Callable CD. She contacted them and discovered that it was 36 months but she stated to me that the ad didn't say that and wanted to check and see if it should.

Now I need some help with a stepped-rate CD disclosure. We're planning on offering a new stepped rate product and I've never dealt with one before. Of course I find this out this morning and they're wanting to roll it out on Friday and I'm already totally frustrated with HMDA (CRA was finished yesterday).

On our initial disclosures are we required to list all rates for the 36 month period (changing every 6 months) and then the blended APY? Any help or reference would be appreciated.