Advertising a Stepped-Rate CD

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Question:

When advertising a stepped-rate CD, is a bank required to include all applicable simple interest rates along with the period each is effective (not more conspicuous than the APY)? For example, the bank offers a 60-month CD at 4.20% for the first 12 months then 3.45% for 48 months, 3.65% APY. Can the Bank advertise the 4.20% for 12 months and the 3.65% APY without mention of the rate in effect for the remaining 48-months (3.45%)?

Answer:

From the Official Staff Commentary to Section 230.8(b), item #2:

Quote:
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2. Stepped-rate accounts. An advertisement that states an interest rate for a stepped-rate account must state all the interest rates and the time period that each rate is in effect.

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Including the higher rate and not the lower one could also be interpreted as misleading, and that is not acceptable.

Suggestion: Advertise the APY, omit the interest rates altogether. But you will have to include them both in any account disclosures for this account.

First published on BankersOnline.com 06/12/06