We are trying to clear up a dispute within our orginazation regarding Reg DD APY calculations.
We offer an andvnced interest CD account currently for a term of twelve months.
The dispute comes in with a proposal to offer the product in different terms. We have differing opinions on how the rate and APY should be calculated.
I have used the Reg DD OCC software and come up with a APY that is higher than the rate for terms under twleve months. Other opinions state that the APY must be less than the rate for terms under twevele months on CD's that do not compound interest.
I am aware of the Feds change in allowing the rate and APY being quoted as equal for terms of twelve months or greater.
My question is, are we using the correct method of Reg DD for these advanced rater CD's that do not compound interest if the APY is greater than the rate.

Minumum deposit is 10,000.
My calculations show a rate of 4.0 with a APY of 4.04

Thanks ro any help offered.

An APY higher than the interest rate for less than a 12 month CD is appropriate. The APY is an annualized number. The examples in Appendix A for §230 show this as well.

If you are contemplating offering these CD's with a term greater than 12 months you may want to familiarize yourself with the IRS reporting requirements for OIDs.

The reason you should get an APY greater than the rate you're using to calculate the interest is the timing of your payment. But I don't think that 4.04% is the right answer.

If I understand the concept, you calculate 4% interest on $10,000 for one year and get $400. At the time of deposit, you pay the customer the $400, and he gets nothing except his $10,000 at the one-year maturity. Right?

The REAL transaction is the customer obtains $400 interest at maturity on $9,600. This give the customer an APY of 4.17% (400/9600 = .041666).