Compounding/Paying

If we disclose that an account will compound interest and pay interest quarterly and its happening monthly, would that require we disclose the TIs to our customers.

What are TIs? If you mean does your TIS disclosure have to match what you are doing, that answer is yes.

It's Friday afternoon and my brain is not working...

Similar question to above. The product is designed to pay and compound interest quarterly with interest being credited to the CD. That is what we disclose on the Truth In Savings.

However, we allow the customer (at their request) to receive his interest monthly and deposit it into another account. Would we have to change our TIS disclosure at account opening to reflect the change to the account to accommodate this request?

Also, if the customer comes in during the term of the CD, but after account opening, (ex: month 3 of a 12-month CD) to ask us to start paying the interest monthly, would we need to redisclose?

I vaguely remember that these changes would not need to be disclosed, but can't find where I read that. Thanks for your help!

Good morning:

This is a paragraph from Regulation DD:

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 If compounding occurs during the term and interest may be withdrawn prior to maturity, a statement that the annual percentage yield assumes interest remains on deposit until maturity and that a withdrawal will reduce earnings. For accounts with a stated maturity greater than one year that do not compound interest on an annual or more frequent basis, that require interest payouts at least annually, and that disclose an APY determined in accordance with section E of Appendix A of this part, a statement that interest cannot remain on deposit and that payout of interest is mandatory.

Thank you for your reply Skittles! We do have that language in the disclosure. That's what I was remembering. We disclose the way the product works - for example compounded and credited quarterly. If the customer chooses to withdraw interest monthly, which we allow, we would still disclose compounded and credited quarterly because that is what we used to calculate the APY. By having the language stated in your response, we would not have to redisclose the APY or the compounding/crediting sections.

Thanks for your help. Some days the brain don't work like it used to...

I agree that you always disclose the compounding as quarterly, but if you allow the customer to have interest credited monthly, then the crediting frequency should be disclosed as "monthly." Do what you say and say what you do.

Compounding = always disclose the bank's policy (quarterly in your case). Because of the statement Skittles quoted ("The APY assumes interest remains . . ."), the APY has to have the same compounding even if the customer withdraws the interest more frequently.
Crediting = always be specific to what the account is actually doing (monthly in your case).