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#582358 - 07/12/06 02:31 AM Advertising Fixed Rate on tiered Accounts
Lee55 Offline
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Joined: Apr 2003
Posts: 42
We are planning to offer one introductory fixed rate on one of our tiered rate accounts for a period of time. After the specified period, the account will revert to paying interest based on the tiered rate structure. In our advertisements, are we required to include the current rates for each tier level? Or can we just advertise the fixed rate?

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#582359 - 07/12/06 01:29 PM Re: Advertising Fixed Rate on tiered Accounts
RVFlyboy Offline
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Soaring over Georgia
You actually have to advertise a blended APY, which combines the effect of the introductory rate and the tiered rate. You'll have to calculate a blended APY for each tier and you'll need to include each of those blended APYs with the corresponding tier balances in equal prominence and close proximity.
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#582360 - 07/12/06 05:29 PM Re: Advertising Fixed Rate on tiered Accounts
Lee55 Offline
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Joined: Apr 2003
Posts: 42
Thanks. I understand this concept if we were to add the intro rate to the current tier structure and my apologies for not being clearer; but the intro rate will be paid across the board on all tiers (not including it with the current tier structure) so wouldn't a blended rate mis-represent what the customer will earn?

So say we pay 1% on balances of $1000 and 1.5% on balances over $1000, the intro rate eliminates these other rates and is paid on all balances/tiers until the end of the year at which time the account will revert back to paying the differnet rates. My reocmmendation for the advertisments is to display the intro rate and the tiered rate structure so that customers understand what the account pays after the intro rate expires.

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#582361 - 07/12/06 05:49 PM Re: Advertising Fixed Rate on tiered Accounts
Banking Bard Offline
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Kentucky
Clarification question:
When you say that the intro rate will be applied until the end of the year, do you mean until 12/31/06, or until a 12 month period after the account is opened? This will likely have an impact on the answer.
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#582362 - 07/12/06 06:31 PM Re: Advertising Fixed Rate on tiered Accounts
RVFlyboy Offline
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Joined: Oct 2000
Posts: 5,991
Soaring over Georgia
Quote:

Thanks. I understand this concept if we were to add the intro rate to the current tier structure and my apologies for not being clearer; but the intro rate will be paid across the board on all tiers (not including it with the current tier structure) so wouldn't a blended rate mis-represent what the customer will earn?

So say we pay 1% on balances of $1000 and 1.5% on balances over $1000, the intro rate eliminates these other rates and is paid on all balances/tiers until the end of the year at which time the account will revert back to paying the differnet rates. My reocmmendation for the advertisments is to display the intro rate and the tiered rate structure so that customers understand what the account pays after the intro rate expires.



You'll have to calculate a blended APY for each tier. Using your tier examples, let's also say your introductory rate through the end of 2006 will be 3% on all tiers. You'd have to calculate a blended APY for balances of more than $1,000 by taking the 3% rate from now through 12/31 and then taking 1.5% from 1/1/07 through the remainder of one year (assuming you're dealing with accounts with no stated maturity). That blended APY is what you would advertise for that tier. You'd do the same thing for balances of $1,000 or less - you'd apply the 3% rate from now until 12/31, then apply the 1% rate from 1/1/07 through the remainder of one year. That's the blended APY you'd advertise for that tier. Using today's date as the start, that calculates to an APY of 2.24%APY for the upper tier, and 1.97%APY on the lower tier. Those are the ONLY APYs you can advertise for this account. You can advertise the 3.00% rate and the 1.50% and 1.00% rates, but no more prominently than the 2.24%APY and the 1.97%APY.
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#582363 - 07/12/06 06:43 PM Re: Advertising Fixed Rate on tiered Accounts
Lee55 Offline
Junior Member
Joined: Apr 2003
Posts: 42
The intro rate will be paid until 12/31/06.

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#582364 - 07/12/06 07:12 PM Re: Advertising Fixed Rate on tiered Accounts
Lee55 Offline
Junior Member
Joined: Apr 2003
Posts: 42
Thank you MagicBanker. After some more research I found your explanation in the reg. Bascially we need to calculate the APY like a stepped rate account with a premium. Really appreciate your help with this. Thanks again.

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#721232 - 04/24/07 08:54 PM Re: Advertising Fixed Rate on tiered Accounts RVFlyboy
Summer101 Offline
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Joined: Jun 2001
Posts: 644
Cessna,

I've seen MMDAs advertised with an intro rate that show the APY for the intro period in the body of the ad with the regular APYs for each tier shown in the fine print. For example, if the bank pays 4% for 90 days on all tiers, the ad says something like "4.15% 90 day introductory APY!" Then the ad discloses all the "non-promotional" tiers and rates in the fine print.

Based on your explanation, this is not acceptable?

Reg DD's Appendix A is a little confusing having separate sections for stepped-, variable-, and tiered-rate accounts. One would think since stepped-rate rules are specifically mentioned in the variable-rate section, they would also be mentioned in the tiered-rate section if they would be applicable. The way its written, it almost seems like the stepped-rate rules would not apply to tiered-rate accounts??

Thanks.

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#721542 - 04/25/07 03:06 PM Re: Advertising Fixed Rate on tiered Accounts Summer101
RVFlyboy Offline
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Posts: 5,991
Soaring over Georgia
In my opinion, the stepped-rate rules still apply for tiered-rate accounts. Each tier basically has it's own stepped rate provision and would have to be disclosed accordingly. An ad that says "4.15% 90 day introductory APY" would be in violation of Reg DD in my opinion.
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Jim Bedsole, CRCM, CBA, CFSA, CAFP
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#721565 - 04/25/07 03:17 PM Re: Advertising Fixed Rate on tiered Accounts RVFlyboy
John Burnett Offline
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John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
I agree with Jim. The stepped-rate rule requires a single blended APY for each tier. There is a real challenge with a promotional rate that ends on a date certain, rather than X days after account opening. That's because the number of days that the intro rate applies gets continually smaller, while the number of days the "regular" rate applies in the one-year used for APY calculation gets larger. Assuming the intro rate is greater than the regular rate, the APY gets a little lower every day until you reach the date when the intro rate no longer applies.
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#722192 - 04/26/07 12:10 PM Re: Advertising Fixed Rate on tiered Accounts John Burnett
Summer101 Offline
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Joined: Jun 2001
Posts: 644
Thanks everyone!

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#724198 - 04/30/07 06:47 PM Re: Advertising Fixed Rate on tiered Accounts John Burnett
Summer101 Offline
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Joined: Jun 2001
Posts: 644
Another question came up on this. If there is an introductory rate of 4.00% paid on all tiers for 90 days, is it correct that the rate sheet and TISA disclosures that are provided at account opening should show the stepped-rate APYs and the 4.00% interest rate for each tier as well?

Or should you show what the regular interest rates and APYs are also?

Thanks.

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#724804 - 05/01/07 04:20 PM Re: Advertising Fixed Rate on tiered Accounts Summer101
Summer101 Offline
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Posts: 644
Any thoughts on this ... if you have a tiered-rate account with an introductory rate and you use the stepped-rate rules to calculate the APY, should you follow all of the stepped-rate rules and show the intro-rate, regular rate, and blended APY on the TISA disclosure?

Would the same apply to an ad, i.e., if you mention the introductory rate, should you also mention the regular rates for each tier?

Thanks.

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#725907 - 05/03/07 12:23 PM Re: Advertising Fixed Rate on tiered Accounts Summer101
Summer101 Offline
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Posts: 644
Bump.

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