If your [daily balance/average daily balance] is $____ or more, the interest rate paid on the entire balance in your account will be ____% with an annual percentage yield of ____%.
Section 230.1 - Authority, purpose, coverage, and effect on state laws.
Section 230.3 - General disclosure requirements.
Section 230.4 - Account disclosures.
Section 230.5 - Subsequent disclosures.
Section 230.6 - Periodic statement disclosures.
Section 230.7 - Payment of interest.
Section 230.9 - Enforcement and record retention.
Appendix A to Part 230--Annual Percentage Yield Calculation
Appendix B to Part 230--Model Clauses and Sample Forms
Appendix C to Part 230--Effect on State Laws
Appendix D to Part 230--Issuance of Staff Interpretations
Supplement I to Part 230--Official Staff Interpretations
Sec. 230.1 Authority, purpose, coverage, and effect on state laws.
(a) Authority. This part, known as Regulation DD, is issued by the Board of Governors of the Federal Reserve System to implement the Truth in Savings Act of 1991 (the act), contained in the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4301 et seq., Pub. L. 102-242, 105 Stat. 2236). Information collection requirements contained in this part have been approved by the Office of Management and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB No. 7100-0255.
(b) Purpose. The purpose of this part is to enable consumers to make informed decisions about accounts at depository institutions. This part requires depository institutions to provide disclosures so that consumers can make meaningful comparisons among depository institutions.
(c) Coverage. This part applies to depository institutions except for credit unions. In addition, the advertising rules in Sec. 230.8 of this part apply to any person who advertises an account offered by a depository institution, including deposit brokers.
(d) Effect on state laws. State law requirements that are inconsistent with the requirements of the act and this part are preempted to the extent of the inconsistency. Additional information on inconsistent state laws and the procedures for requesting a preemption determination from the Board are set forth in appendix C of this part.
For purposes of this part, the following definitions apply:
(a) Account means a deposit account at a depository institution that is held by or offered to a consumer. It includes time, demand, savings, and negotiable order of withdrawal accounts. For purposes of the advertising requirements in Sec. 230.8 of this part, the term also includes an account at a depository institution that is held by or on behalf of a deposit broker, if any interest in the account is held by or offered to a consumer.
(b) Advertisement means a commercial message, appearing in any medium, that promotes directly or indirectly the availability of, or a deposit in, an account.
(c) Annual percentage yield means a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period and calculated according to the rules in appendix A of this part.
(d) Average daily balance method means the application of a periodic rate to the average daily balance in the account for the period. The average daily balance is determined by adding the full amount of principal in the account for each day of the period and dividing that figure by the number of days in the period.
(e) Board means the Board of Governors of the Federal Reserve System.
(f) Bonus means a premium, gift, award, or other consideration worth more than $10 (whether in the form of cash, credit, merchandise, or any equivalent) given or offered to a consumer during a year in exchange for opening, maintaining, renewing, or increasing an account balance. The term does not include interest, other consideration worth $10 or less given during a year, the waiver or reduction of a fee, or the absorption of expenses.
(g) Business day means a calendar day other than a Saturday, a Sunday, or any of the legal public holidays specified in 5 U.S.C. 6103(a).
(h) Consumer means a natural person who holds an account primarily for personal, family, or household purposes, or to whom such an account is offered. The term does not include a natural person who holds an account for another in a professional capacity.
(i) Daily balance method means the application of a daily periodic rate to the full amount of principal in the account each day.
(j) Depository institution and institution mean an institution defined in section 19(b)(1)(A)(i)-(vi) of the Federal Reserve Act (12 U.S.C. 461), except credit unions defined in section 19(b)(1)(A)(iv).
(k) Deposit broker means any person who is a deposit broker as defined in section 29(g) of the Federal Deposit Insurance Act (12 U.S.C. 1831f(g)).
(l) Fixed-rate account means an account for which the institution contracts to give at least 30 calendar days advance written notice of decreases in the interest rate.
(m) Grace period means a period following the maturity of an automatically renewing time account during which the consumer may withdraw funds without being assessed a penalty.
(n) Interest means any payment to a consumer or to an account for the use of funds in an account, calculated by application of a periodic rate to the balance. The term does not include the payment of a bonus or other consideration worth $10 or less given during a year, the waiver or reduction of a fee, or the absorption of expenses.
(o) Interest rate means the annual rate of interest paid on an account which does not reflect compounding. For the purposes of the account disclosures in Sec. 230.4(b)(1)(i) of this part, the interest rate may, but need not, be referred to as the ``annual percentage rate'' in addition to being referred to as the ``interest rate.''
(p) Passbook savings account means a savings account in which the consumer retains a book or other document in which the institution records transactions on the account.
(q) Periodic statement means a statement setting forth information about an account (other than a time account or passbook savings account) that is provided to a consumer on a regular basis four or more times a year.
(r) State means a state, the District of Columbia, the commonwealth of Puerto Rico, and any territory or possession of the United States.
(s) Stepped-rate account means an account that has two or more interest rates that take effect in succeeding periods and are known when the account is opened.
(t) Tiered-rate account means an account that has two or more interest rates that are applicable to specified balance levels.
(u) Time account means an account with a maturity of at least seven days in which the consumer generally does not have a right to make withdrawals for six days after the account is opened, unless the deposit is subject to an early withdrawal penalty of at least seven days' interest on amounts withdrawn.
(v) Variable-rate account means an account in which the interest rate may change after the account is opened, unless the institution contracts to give at least 30 calendar days advance written notice of rate decreases.
Sec. 230.3 General disclosure requirements.
(a) Form. Depository institutions shall make the disclosures required by Secs. 230.4 through 230.6 of this part, as applicable, clearly and conspicuously in writing and in a form the consumer may keep. Disclosures for each account offered by an institution may be presented separately or combined with disclosures for the institution's other accounts, as long as it is clear which disclosures are applicable to the consumer's account.
(b) General. The disclosures shall reflect the terms of the legal obligation of the account agreement between the consumer and the depository institution. Disclosures may be made in languages other than English, provided the disclosures are available in English upon request.
(c) Relation to Regulation E (12 CFR part 205). Disclosures required by and provided in accordance with the Electronic Fund Transfer Act (15 U.S.C. 1601) and its implementing Regulation E (12 CFR part 205) that are also required by this part may be substituted for the disclosures required by this part.
(d) Multiple consumers. If an account is held by more than one consumer, disclosures may be made to any one of the consumers.
(e) Oral response to inquiries. In an oral response to a consumer's inquiry about interest rates payable on its accounts, the depository institution shall state the annual percentage yield. The interest rate may be stated in addition to the annual percentage yield. No other rate may be stated.
(f) Rounding and accuracy rules for rates and yields--(1) Rounding. The annual percentage yield, the annual percentage yield earned, and the interest rate shall be rounded to the nearest one-hundredth of one percentage point (.01%) and expressed to two decimal places. For account disclosures, the interest rate may be expressed to more than two decimal places.
(2) Accuracy. The annual percentage yield (and the annual percentage yield earned) will be considered accurate if not more that one-twentieth of one percentage point (.05%) above or below the annual percentage yield (and the annual percentage yield earned) determined in accordance with the rules in appendix A of this part.
Sec. 230.4 Account disclosures.
(a) Delivery of account disclosures--(1) Account opening. A depository institution shall provide account disclosures to a consumer before an account is opened or a service is provided, whichever is earlier. An institution is deemed to have provided a service when a fee required to be disclosed is assessed. If the consumer is not present at the institution when the account is opened or the service is provided and has not already received the disclosures, the institution shall mail or deliver the disclosures no later than 10 business days after the account is opened or the service is provided, whichever is earlier.
(2) Requests. (i) A depository institution shall provide account disclosures to a consumer upon request. If the consumer is not present at the institution when a request is made, the institution shall mail or deliver the disclosures within a reasonable time after it receives the request.
(ii) In providing disclosures upon request, the institution may:
(A) Specify an interest rate and annual percentage yield that were offered within the most recent seven calendar days; state that the rate and yield are accurate as of an identified date; and provide a telephone number consumers may call to obtain current rate information.
(B) State the maturity of a time account as a term rather than a date.
(b) Content of account disclosures. Account disclosures shall include the following, as applicable:
(1) Rate information--(i) Annual percentage yield and interest rate. The ``annual percentage yield'' and the ``interest rate,'' using those terms, and for fixed-rate accounts the period of time the interest rate will be in effect.
(ii) Variable rates. For variable-rate accounts:
(A) The fact that the interest rate and annual percentage yield may change;
(B) How the interest rate is determined;
(C) The frequency with which the interest rate may change; and
(D) Any limitation on the amount the interest rate may change.
(2) Compounding and crediting--(i) Frequency. The frequency with which interest is compounded and credited.
(ii) Effect of closing an account. If consumers will forfeit interest if they close the account before accrued interest is credited, a statement that interest will not be paid in such cases.
(3) Balance information--(i) Minimum balance requirements. Any minimum balance required to:
(A) Open the account;
(B) Avoid the imposition of a fee; or
(C) Obtain the annual percentage yield disclosed.
Except for the balance to open the account, the disclosure shall state how the balance is determined for these purposes.
(ii) Balance computation method. An explanation of the balance computation method specified in Sec. 230.7 of this part used to calculate interest on the account.
(iii) When interest begins to accrue. A statement of when interest begins to accrue on noncash deposits.
(4) Fees. The amount of any fee that may be imposed in connection with the account (or an explanation of how the fee will be determined) and the conditions under which the fee may be imposed.
(5) Transaction limitations. Any limitations on the number or dollar amount of withdrawals or deposits.
(6) Features of time accounts. For time accounts:
(i) Time requirements. The maturity date.
(ii) Early withdrawal penalties. A statement that a penalty will or may be imposed for early withdrawal, how it is calculated, and the conditions for its assessment.
(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 that do not compound interest on an annual or more frequent basis, with a stated maturity greater than one year 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. 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.
(iv) Renewal policies. A statement of whether or not the account will renew automatically at maturity. If it will, a statement of whether or not a grace period will be provided and, if so, the length of that period must be stated. If the account will not renew automatically, a statement of whether interest will be paid after maturity if the consumer does not renew the account must be stated.
(7) Bonuses. The amount or type of any bonus, when the bonus will be provided, and any minimum balance and time requirements to obtain the bonus.
(c) Notice to existing account holders--(1) Notice of availability of disclosures. Depository institutions shall provide a notice to consumers who receive periodic statements and who hold existing accounts of the type offered by the institution on June 21, 1993. The notice shall be included on or with the first periodic statement sent on or after June 21, 1993 (or on or with the first periodic statement for a statement cycle beginning on or after that date). The notice shall state that consumers may request account disclosures containing terms, fees, and rate information for their account. In responding to such a request, institutions shall provide disclosures in accordance with paragraph (a)(2) of this section.
(2) Alternative to notice. As an alternative to the notice described in paragraph (c)(1) of this section, institutions may provide account disclosures to consumers. The disclosures may be provided either with a periodic statement or separately, but must be sent no later than when the periodic statement described in paragraph (c)(1) is sent.
Sec. 230.5 Subsequent disclosures.
(a) Change in terms--(1) Advance notice required. A depository institution shall give advance notice to affected consumers of any change in a term required to be disclosed under Sec. 230.4(b) of this part if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. The notice shall be mailed or delivered at least 30 calendar days before the effective date of the change.
(2) No notice required. No notice under this section is required for:
(i) Variable-rate changes. Changes in the interest rate and corresponding changes in the annual percentage yield in variable-rate accounts.
(ii) Check printing fees. Changes in fees assessed for check printing.
(iii) Short-term time accounts. Changes in any term for time accounts with maturities of one month or less.
(b) Notice before maturity for time accounts longer than one month that renew automatically. For time accounts with a maturity longer than one month that renew automatically at maturity, institutions shall provide the disclosures described below before maturity. The disclosures shall be mailed or delivered at least 30 calendar days before maturity of the existing account. Alternatively, the disclosures may be mailed or delivered at least 20 calendar days before the end of the grace period on the existing account, provided a grace period of at least five calendar days is allowed.
(1) Maturities of longer than one year. If the maturity is longer than one year, the institution shall provide account disclosures set forth in Sec. 230.4(b) of this part for the new account, along with the date the existing account matures. If the interest rate and annual percentage yield that will be paid for the new account are unknown when disclosures are provided, the institution shall state that those rates have not yet been determined, the date when they will be determined, and a telephone number consumers may call to obtain the interest rate and the annual percentage yield that will be paid for the new account.
(2) Maturities of one year or less but longer than one month. If the maturity is one year or less but longer than one month, the institution shall either:
(i) Provide disclosures as set forth in paragraph (b)(1) of this section; or
(ii) Disclose to the consumer:
(A) The date the existing account matures and the new maturity date if the account is renewed;
(B) The interest rate and the annual percentage yield for the new account if they are known (or that those rates have not yet been determined, the date when they will be determined, and a telephone number the consumer may call to obtain the interest rate and the annual percentage yield that will be paid for the new account); and
(C) Any difference in the terms of the new account as compared to the terms required to be disclosed under Sec. 230.4(b) of this part for the existing account.
(c) Notice before maturity for time accounts longer than one year that do not renew automatically. For time accounts with a maturity longer than one year that do not renew automatically at maturity, institutions shall disclose to consumers the maturity date and whether interest will be paid after maturity. The disclosures shall be mailed or delivered at least 10 calendar days before maturity of the existing account.
Sec. 230.6 Periodic statement disclosures.
(a) General rule. If a depository institution mails or delivers a periodic statement, the statement shall include the following disclosures:
(1) Annual percentage yield earned. The ``annual percentage yield earned'' during the statement period, using that term, calculated according to the rules in Appendix A of this part.
(2) Amount of interest. The dollar amount of interest earned during the statement period.
(3) Fees imposed. Fees required to be disclosed under Sec. 230.4(b)(4) of this part that were debited to the account during the statement period. The fees shall be itemized by type and dollar amounts.
(4) Length of period. The total number of days in the statement period, or the beginning and ending dates of the period.
(b) Special rule for average daily balance method. In making the disclosures described in paragraph (a) of this section, institutions that use the average daily balance method and that calculate interest for a period other than the statement period shall calculate and disclose the annual percentage yield earned and amount of interest earned based on that period rather than the statement period. The information in paragraph (a)(4) of this section shall be stated for that period as well as for the statement period.
(c) Electronic communication. (1) Definition. The term electronic communication means a message transmitted electronically between a consumer and a depository institution in a format that allows visual text to be displayed on equipment such as a personal computer monitor.
(2) Electronic communication between depository institution and consumer. A depository institution and a consumer may agree that the institution will send by electronic communication periodic-statement disclosures required by § 230.6. Periodic-statement disclosures sent by electronic communication to a consumer must comply with § 230.3 and any applicable timing requirements contained in this part.
Sec. 230.7 Payment of interest.
(a) Permissible methods--(1) Balance on which interest is calculated. Institutions shall calculate interest on the full amount of principal in an account for each day by use of either the daily balance method or the average daily balance method.1
;1 Institutions shall calculate interest by use of a daily rate of at least \1/365\ of the interest rate. In a leap year a daily rate of \1/366\ of the interest rate may be used.
(2) Determination of minimum balance to earn interest. An institution shall use the same method to determine any minimum balance required to earn interest as it uses to determine the balance on which interest is calculated. An institution may use an additional method that is unequivocally beneficial to the consumer.
(b) Compounding and crediting policies. This section does not require institutions to compound or credit interest at any particular frequency.
(c) Date interest begins to accrue. Interest shall begin to accrue not later than the business day specified for interest-bearing accounts in section 606 of the Expedited Funds Availability Act (12 U.S.C. 4005 et seq.) and implementing Regulation CC (12 CFR part 229). Interest shall accrue until the day funds are withdrawn.
(a) Misleading or inaccurate advertisements. An advertisement shall not be misleading or inaccurate and shall not misrepresent a depository institution's deposit contract. An advertisement shall not refer to or describe an account as ``free'' or ``no cost'' (or contain a similar term) if any maintenance or activity fee may be imposed on the account. The word ``profit'' shall not be used in referring to interest paid on an account.
(b) Permissible rates. If an advertisement states a rate of return, it shall state the rate as an ``annual percentage yield'' using that term. (The abbreviation ``APY'' may be used provided the term ``annual percentage yield'' is stated at least once in the advertisement.) The advertisement shall not state any other rate, except that the ``interest rate,'' using that term, may be stated in conjunction with, but not more conspicuously than, the annual percentage yield to which it relates.
(c) When additional disclosures are required. Except as provided in paragraph (e) of this section, if the annual percentage yield is stated in an advertisement, the advertisement shall state the following information, to the extent applicable, clearly and conspicuously:
(1) Variable rates. For variable-rate accounts, a statement that the rate may change after the account is opened.
(2) Time annual percentage yield is offered. The period of time the annual percentage yield will be offered, or a statement that the annual percentage yield is accurate as of a specified date.
(3) Minimum balance. The minimum balance required to obtain the advertised annual percentage yield. For tiered-rate accounts, the minimum balance required for each tier shall be stated in close proximity and with equal prominence to the applicable annual percentage yield.
(4) Minimum opening deposit. The minimum deposit required to open the account, if it is greater than the minimum balance necessary to obtain the advertised annual percentage yield.
(5) Effect of fees. A statement that fees could reduce the earnings on the account.
(6) Features of time accounts. For time accounts:
(i) Time requirements. The term of the account.
(ii) Early withdrawal penalties: A statement that a penalty will or may be imposed for early withdrawal.
(iii) Required interest payouts. For noncompounding time 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.
(d) Bonuses. Except as provided in paragraph (e) of this section, if a bonus is stated in an advertisement, the advertisement shall state the following information, to the extent applicable, clearly and conspicuously:
(1) The ``annual percentage yield,'' using that term;
(2) The time requirement to obtain the bonus;
(3) The minimum balance required to obtain the bonus;
(4) The minimum balance required to open the account, if it is greater than the minimum balance necessary to obtain the bonus; and
(5) When the bonus will be provided.
(e) Exemption for certain advertisements--(1) Certain media. If an advertisement is made through one of the following media, it need not contain the information in paragraphs (c)(1), (c)(2), (c)(4), (c)(5), (c)(6)(ii), (d)(4), and (d)(5) of this section:
(i) Broadcast or electronic media, such as television or radio;
(ii) Outdoor media, such as billboards; or
(iii) Telephone response machines.
(2) Indoor signs. (i) Sings inside the premises of a depository institution (or the premises of a deposit broker) are not subject to paragraphs (b), (c), (d) or (e)(1) of this section.
(ii) If a sign exempt by paragraph (e)(2) of this section states a rate of return, it shall:
(A) State the rate as an ``annual percentage yield,'' using that term or the term ``APY.'' The sign shall not state any other rate, except that the interest rate may be stated in conjunction with the annual percentage yield to which it relates.
(B) Contain a statement advising consumers to contact an employee for further information about applicable fees and terms.
Sec. 230.9 Enforcement and record retention.
(a) Administrative enforcement. Section 270 of the act contains the provisions relating to administrative sanctions for failure to comply with the requirements of the act and this part. Compliance is enforced by the agencies listed in that section.
(b) Civil liability. Section 271 of the Act contains the provisions relating to civil liability for failure to comply with the requirements of the act and this part; Section 271 is repealed effective September 30, 2001.
(c) Record retention. A depository institution shall retain evidence of compliance with this part for a minimum of two years after the date disclosures are required to be made or action is required to be taken. The administrative agencies responsible for enforcing this part may require depository institutions under their jurisdiction to retain records for a longer period if necessary to carry out their enforcement responsibilities under section 270 of the act.
Appendix A to Part 230--Annual Percentage Yield Calculation
The annual percentage yield measures the total amount of interest paid on an account based on the interest rate and the frequency of compounding.1 The annual percentage yield is expressed as an annualized rate, based on a 365-day year.2 Part I of this appendix discusses the annual percentage yield calculations for account disclosures and advertisements, while Part II discusses annual percentage yield earned calculations for periodic statements.
1 The annual percentage yield reflects only interest and does not include the value of any bonus (or other consideration worth $10 or less) that may be provided to the consumer to open, maintain, increase or renew an account. Interest or other earnings are not to be included in the annual percentage yield if such amounts are determined by circumstances that may or may not occur in the future.
2 Institutions may calculate the annual percentage yield based on a 365-day or a 366-day year in a leap year.
Part I. Annual Percentage Yield for Account Disclosures and Advertising Purposes
In general, the annual percentage yield for account disclosures under Secs. 230.4 and 230.5 and for advertising under Sec. 230.8 is an annualized rate that reflects the relationship between the amount of interest that would be earned by the consumer for the term of the account and the amount of principal used to calculate that interest. Special rules apply to accounts with tiered and stepped interest rates, and to certain time accounts with a stated maturity greater than one year.
A. General Rules
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. In determining the total interest figure to be used in the formula, institutions shall assume that all principal and interest remain on deposit for the entire term and that no other transactions (deposits or withdrawals) occur during the term.3 For time accounts that are offered in multiples of months, institutions may base the number of days on either the actual number of days during the applicable period, or the number of days that would occur for any actual sequence of that many calendar months. If institutions choose to use the latter rule, they must use the same number of days to calculate the dollar amount of interest earned on the account that is used in the annual percentage yield formula (where ``Interest'' is divided by ``Principal'').
3 This assumption shall not be used if an institution requires, as a condition of the account, that consumers withdraw interest during the term. In such a case, the interest (and annual percentage yield calculation) shall reflect that requirement.
The annual percentage yield is calculated by use of the following general formula (``APY'' is used for convenience in the formulas):
APY=100 [(1+Interest/Principal)(365/Days in term)-1]
``Principal'' is the amount of funds assumed to have been deposited at the beginning of the account.
``Interest'' is the total dollar amount of interest earned on the principal for the term of the account.
``Days in term'' is the actual number of days in the term of the account. When the ``days in term'' is 365 (that is, where the stated maturity is 365 days or where the account does not have a stated maturity), the annual percentage yield can be calculated by use of the following simple formula:
APY=100 (Interest/Principal)
Examples
(1) If an institution pays $61.68 in interest for a 365-day year on $1,000 deposited into a NOW account, using the general formula above, the annual percentage yield is 6.17%:
APY=100[(1+61.68/1,000) (365/365) -1]
APY=6.17%
Or, using the simple formula above (since, as an account without a stated term, the term is deemed to be 365 days):
APY=100(61.68/1,000)
APY=6.17%
(2) If an institution pays $30.37 in interest on a $1,000 six-month certificate of deposit (where the six-month period used by the institution contains 182 days), using the general formula above, the annual percentage yield is 6.18%: APY=100[(1+30.37/1,000) (365/182) -1]
APY=6.18%
B. Stepped-Rate Accounts (Different Rates Apply in Succeeding Periods)
For accounts with two or more interest rates applied in succeeding periods (where the rates are known at the time the account is opened), an institution shall assume each interest rate is in effect for the length of time provided for in the deposit contract.
Examples
(1) If an institution offers a $1,000 6-month certificate of deposit on which it pays a 5% interest rate, compounded daily, for the first three months (which contain 91 days), and a 5.5% interest rate, compounded daily, for the next three months (which contain 92 days), the total interest for six months is $26.68 and, using the general formula above, the annual percentage yield is 5.39%:
APY=100[(1+26.68/1,000) (365/183) -1]
APY=5.39%
(2) If an institution offers a $1,000 two-year certificate of deposit on which it pays a 6% interest rate, compounded daily, for the first year, and a 6.5% interest rate, compounded daily, for the next year, the total interest for two years is $133.13, and, using the general formula above, the annual percentage yield is 6.45%:
APY=100[(1+133.13/1,000) (365/730) -1]
APY=6.45%
C. Variable-Rate Accounts
For variable-rate accounts without an introductory premium or discounted rate, an institution must base the calculation only on the initial interest rate in effect when the account is opened (or advertised), and assume that this rate will not change during the year.
Variable-rate accounts with an introductory premium (or discount) rate must be calculated like a stepped-rate account. Thus, an institution shall assume that: (1) The introductory interest rate is in effect for the length of time provided for in the deposit contract; and (2) the variable interest rate that would have been in effect when the account is opened or advertised (but for the introductory rate) is in effect for the remainder of the year. If the variable rate is tied to an index, the index-based rate in effect at the time of disclosure must be used for the remainder of the year. If the rate is not tied to an index, the rate in effect for existing consumers holding the same account (who are not receiving the introductory interest rate) must be used for the remainder of the year.
For example, if an institution offers an account on which it pays a 7% interest rate, compounded daily, for the first three months (which, for example, contain 91 days), while the variable interest rate that would have been in effect when the account was opened was 5%, the total interest for a 365-day year for a $1,000 deposit is $56.52 (based on 91 days at 7% followed by 274 days at 5%). Using the simple formula, the annual percentage yield is 5.65%:
APY=100(56.52/1,000)
APY=5.65%
D. Tiered-Rate Accounts (Different Rates Apply to Specified Balance Levels)
For accounts in which two or more interest rates paid on the account are applicable to specified balance levels, the institution must calculate the annual percentage yield in accordance with the method described below that it uses to calculate interest. In all cases, an annual percentage yield (or a range of annual percentage yields, if appropriate) must be disclosed for each balance tier.
For purposes of the examples discussed below, assume the following:
------------------------------------------------------------------------ Interest rate Deposit balance required to earn rate (percent) ------------------------------------------------------------------------ 5.25..... Up to but not exceeding $2,500. 5.50..... Above $2,500 but not exceeding $15,000. 5.75..... Above $15,000. ------------------------------------------------------------------------
Tiering Method A. Under this method, an institution pays on the full balance in the account the stated interest rate that corresponds to the applicable deposit tier. For example, if a consumer deposits $8,000, the institution pays the 5.50% interest rate on the entire $8,000.
When this method is used to determine interest, only one annual percentage yield will apply to each tier. Within each tier, the annual percentage yield will not vary with the amount of principal assumed to have been deposited.
For the interest rates and deposit balances assumed above, the institution will state three annual percentage yields--one corresponding to each balance tier. Calculation of each annual percentage yield is similar for this type of account as for accounts with a single interest rate. Thus, the calculation is based on the total amount of interest that would be received by the consumer for each tier of the account for a year and the principal assumed to have been deposited to earn that amount of interest.
First tier. Assuming daily compounding, the institution will pay $53.90 in interest on a $1,000 deposit. Using the general formula, for the first tier, the annual percentage yield is 5.39%:
APY=100[(1+53.90/1,000) (365/365) -1]
APY=5.39%
Using the simple formula:
APY=100(53.90/1,000)
APY=5.39%
Second tier. The institution will pay $452.29 in interest on an $8,000 deposit. Thus, using the simple formula, the annual percentage yield for the second tier is 5.65%:
APY=100(452.29/8,000)
APY=5.65%
Third tier. The institution will pay $1,183.61 in interest on a $20,000 deposit. Thus, using the simple formula, the annual percentage yield for the third tier is 5.92%:
APY=100(1,183.61/20,000)
APY=5.92%
Tiering Method B. Under this method, an institution pays the stated interest rate only on that portion of the balance within the specified tier. For example, if a consumer deposits $8,000, the institution pays 5.25% on $2,500 and 5.50% on $5,500 (the difference between $8,000 and the first tier cut-off of $2,500).
The institution that computes interest in this manner must provide a range that shows the lowest and the highest annual percentage yields for each tier (other than for the first tier, which, like the tiers in Method A, has the same annual percentage yield throughout). The low figure for an annual percentage yield range is calculated based on the total amount of interest earned for a year assuming the minimum principal required to earn the interest rate for that tier. The high figure for an annual percentage yield range is based on the amount of interest the institution would pay on the highest principal that could be deposited to earn that same interest rate. If the account does not have a limit on the maximum amount that can be deposited, the institution may assume any amount.
For the tiering structure assumed above, the institution would state a total of five annual percentage yields--one figure for the first tier and two figures stated as a range for the other two tiers.
First tier. Assuming daily compounding, the institution would pay $53.90 in interest on a $1,000 deposit. For this first tier, using the simple formula, the annual percentage yield is 5.39%:
APY=100(53.90/1,000)
APY=5.39%
Second tier. For the second tier, the institution would pay between $134.75 and $841.45 in interest, based on assumed balances of $2,500.01 and $15,000, respectively. For $2,500.01, interest would be figured on $2,500 at 5.25% interest rate plus interest on $.01 at 5.50%. For the low end of the second tier, therefore, the annual percentage yield is 5.39%, using the simple formula:
APY=100(134.75/2,500)
APY=5.39%
For $15,000, interest is figured on $2,500 at 5.25% interest rate plus interest on $12,500 at 5.50% interest rate. For the high end of the second tier, the annual percentage yield, using the simple formula, is 5.61%:
APY=100(841.45/15,000)
APY=5.61%
Thus, the annual percentage yield range for the second tier is 5.39% to 5.61%.
Third tier. For the third tier, the institution would pay $841.45 in interest on the low end of the third tier (a balance of $15,000.01). For $15,000.01, interest would be figured on $2,500 at 5.25% interest rate, plus interest on $12,500 at 5.50% interest rate, plus interest on $.01 at 5.75% interest rate. For the low end of the third tier, therefore, the annual percentage yield (using the simple formula) is 5.61%:
APY=100 (841.45/15,000)
APY=5.61%
Since the institution does not limit the account balance, it may assume any maximum amount for the purposes of computing the annual percentage yield for the high end of the third tier. For an assumed maximum balance amount of $100,000, interest would be figured on $2,500 at 5.25% interest rate, plus interest on $12,500 at 5.50% interest rate, plus interest on $85,000 at 5.75% interest rate. For the high end of the third tier, therefore, the annual percentage yield, using the simple formula, is 5.87%.
APY=100 (5,871.79/100,000)
APY=5.87%
Thus, the annual percentage yield range that would be stated for the third tier is 5.61% to 5.87%.
If the assumed maximum balance amount is $1,000,000 instead of $100,000, the institution would use $985,000 rather than $85,000 in the last calculation. In that case, for the high end of the third tier the annual percentage yield, using the simple formula, is 5.91%:
APY=100 (59134.22/1,000,000)
APY=5.91%
Thus, the annual percentage yield range that would be stated for the third tier is 5.61% to 5.91%.
E. Time Accounts with a Stated Maturity Greater than One Year that Pay Interest At Least Annually
1. For time accounts with a stated maturity greater than one year that do not compound interest on an annual or more frequent basis, and that require the consumer to withdraw interest at least annually, the annual percentage yield may be disclosed as equal to the interest rate.
Example
(1) If an institution offers a $1,000 two-year certificate of deposit that does not compound and that pays out interest semi-annually by check or transfer, at a 6.00% interest rate, the annual percentage yield may be disclosed as 6.00%.
(2) For time accounts covered by this paragraph that are also stepped-rate accounts, the annual percentage yield may be disclosed as equal to the composite interest rate.
Example
(1) If an institution offers a $1,000 three-year certificate of deposit that does not compound and that pays out interest annually solely by check or transfer at a 5.00% interest rate for the first year, 6.00% interest rate for the second year, and 7.00% interest rate for the third year, the institution may compute the composite interest rate and APY as follows:
(a) Multiply each interest rate by the number of days it will be in effect;
(b) Add these figures together; and
(c) Divide by the total number of days in the term.
(2) Applied to the example, the products of the interest rates and days the rates are in effect are (5.00% x 365 days) 1825, (6.00% x 365 days) 2190, and (7.00% x 365 days) 2555 days, respectively. The sum of these products, 6570 days, is divided by 1095, the total number of days in the term. The composite interest rate and APY are both 6.00%.
Part II. Annual Percentage Yield Earned for Periodic Statements
The annual percentage yield earned for periodic statements under Sec. 230.6(a) is an annualized rate that reflects the relationship between the amount of interest actually earned on the consumer's account during the statement period and the average daily balance in the account for the statement period. Pursuant to Sec. 230.6(b), however, if an institution uses the average daily balance method and calculates interest for a period other than the statement period, the annual percentage yield earned shall reflect the relationship between the amount of interest earned and the average daily balance in the account for that other period.
The annual percentage yield earned shall be calculated by using the following formulas (``APY Earned'' is used for convenience in the formulas):
A. General formula. APY Earned=100 [(1+Interest earned/Balance)(365/Days in period)-1]
``Balance'' is the average daily balance in the account for the period.
``Interest earned'' is the actual amount of interest earned on the account for the period.
``Days in period'' is the actual number of days for the period.
Examples
(1) Assume an institution calculates interest for the statement period (and uses either the daily balance or the average daily balance method), and the account has a balance of $1,500 for 15 days and a balance of $500 for the remaining 15 days of a 30-day statement period. The average daily balance for the period is $1,000. The interest earned (under either balance computation method) is $5.25 during the period. The annual percentage yield earned (using the formula above) is 6.58%:
APY Earned=100 [(1+5.25/1,000)(365/30)-1]
APY Earned=6.58%
(2) Assume an institution calculates interest on the average daily balance for the calendar month and provides periodic statements that cover the period from the 16th of one month to the 15th of the next month. The account has a balance of $2,000 September 1 through September 15 and a balance of $1,000 for the remaining 15 days of September. The average daily balance for the month of September is $1,500, which results in $6.50 in interest earned for the month.The annual percentage yield earned for the month of September would be shown on the periodic statement covering September 16 through October 15. The annual percentage yield earned (using the formula above) is 5.40%:
APY Earned=100 [(6.50/1,500)(365/30)-1]
APY Earned=5.40%
(3) Assume an institution calculates interest on the average daily balance for a quarter (for example, the calendar months of September through November), and provides monthly periodic statements covering calendar months. The account has a balance of $1,000 throughout the 30 days of September, a balance of $2,000 throughout the 31 days of October, and a balance of $3,000 throughout the 30 days of November. The average daily balance for the quarter is $2,000, which results in $21 in interest earned for the quarter. The annual percentage yield earned would be shown on the periodic statement for November. The annual percentage yield earned (using the formula above) is 4.28%:
APY Earned=100 [(1+21/2,000)(365/91)-1]
APY Earned=4.28%
B. Special formula for use where periodic statement is sent more often than the period for which interest is compounded.
Institutions that use the daily balance method to accrue interest and that issue periodic statements more often than the period for which interest is compounded shall use the following special formula:
The following definition applies for use in this formula (all other terms are defined under Part II):
``Compounding'' is the number of days in each compounding period.
Assume an institution calculates interest for the statement period using the daily balance method, pays a 5.00% interest rate, compounded annually, and provides periodic statements for each monthly cycle. The account has a daily balance of $1,000 for a 30-day statement period. The interest earned is $4.11 for the period, and the annual percentage yield earned (using the special formula above) is 5.00%:
Appendix B to Part 230--Model Clauses and Sample Forms
Table of contents
B-1--Model Clauses for Account Disclosures (Section 230.4(b))
B-2--Model Clauses for Change in Terms (Section 230.5(a))
B-3--Model Clauses for Pre-Maturity Notices for Time Accounts (Section 230.5(b)(2) and 230.5(d))
B-4--Sample Form (Multiple Accounts)
B-5--Sample Form (Now Account)
B-6--Sample Form (Tiered Rate Money Market Account)
B-7--Sample Form (Certificate of Deposit)
B-8--Sample Form (Certificate of Deposit Advertisement)
B-9--Sample Form (Money Market Account Advertisement)
B-1--Model Clauses for Account Disclosures
(a) Rate information
(i) Fixed-rate accounts
The interest rate on your account is ____% with an annual percentage yield of ____%. You will be paid this rate [for (time period)/until (date)/ for at least 30 calendar days].
(ii) Variable-rate accounts
The interest rate on your account is ____% with an annual percentage yield of ____%.
Your interest rate and annual percentage yield may change.
Determination of Rate
The interest rate on your account is based on (name of index) [plus/minus a margin of ________].
or
At our discretion, we may change the interest rate on your account.
Frequency of Rate Changes
We may change the interest rate on your account [every (time period)/at any time].
Limitations on Rate Changes
The interest rate for your account will never change by more than ____% each (time period).
The interest rate will never be [less/more] than ____%.
or
The interest rate will never [exceed____% above/drop more than ____% below] the interest rate initially disclosed to you.
(iii) Stepped-rate accounts
The initial interest rate for your account is ____%. You will be paid this rate [for (time period)/until (date)]. After that time, the nterest rate for your account will be ____%, and you will be paid this rate [for (time period)/until (date)]. The annual percentage yield for your account is ____%.
(iv) Tiered-rate accounts
Tiering Method A
If your [daily balance/average daily balance] is $____ or more, the interest rate paid on the entire balance in your account will be ____% with an annual percentage yield of ____%.
If your [daily balance/average daily balance] is more than $____, but less than $____, the interest rate paid on the entire balance in your account will be ___% with an annual percentage yield of ____%.
If your [daily balance/average daily balance] is $____ or less, the interest rate paid on the entire balance will be ____% with an annual percentage yield of ____%.
Tiering Method B
An interest rate of ____% will be paid only for that portion of your [daily balance/average daily balance] that is greater
than $____. The annual percentage yield for this tier will range from ____% to ____%, depending on the balance in the account.
An interest rate of ____% will be paid only for that portion of your [daily balance/average daily balance] that is greater
than $____, but less than $____. The annual percentage yield for this tier will range from ____% to ____%, depending on the balance in the account.
If your [daily balance/average daily balance] is $____ or less, the interest rate paid on the entire balance will be ____% with an annual percentage yield of ____%.
(b) Compounding and crediting
(i) Frequency
Interest will be compounded [on a ____ basis/every (time period)]. Interest will be credited to your account [on a ____ basis/every (time period)].
(ii) Effect of closing an account
If you close your account before interest is credited, you will not receive the accrued interest.
(c) Minimum balance requirements
(i) To open the account
You must deposit $______ to open this account.
(ii) To avoid imposition of fees
A minimum balance fee of $______ will be imposed every (time period) if the balance in the account falls below $______ any day of the (time period).
A minimum balance fee of $______ will be imposed every (time period) if the average daily balance for the (time period) falls below $______. The average daily balance is calculated by adding the principal in the account for each day of the period and dividing that figure by the number of days in the period.
(iii) To obtain the annual percentage yield disclosed
You must maintain a minimum balance of $______ in the account each day to obtain the disclosed annual percentage yield.
You must maintain a minimum average daily balance of $______ to obtain the disclosed annual percentage yield. The average daily balance is calculated by adding the principal in the account for each day of the period and dividing that figure by the number of days in the period.
(d) Balance computation method
(i) Daily balance method
We use the daily balance method to calculate the interest on your account. This method applies a daily periodic rate to the principal in the account each day.
(ii) Average daily balance method
We use the average daily balance method to calculate interest on your account. This method applies a periodic rate to the average daily balance in the account for the period. The average daily balance is calculated by adding the principal in the account for each day of the period and dividing that figure by the number of days in the period.
(e) Accrual of interest on noncash deposits
Interest begins to accrue no later than the business day we receive credit for the deposit of noncash items (for example, checks).
or
Interest begins to accrue on the business day you deposit noncash items (for example, checks).
(f) Fees
The following fees may be assessed against your account:
______________________________$________ ______________________________$________
______________________________$________
________(conditions for imposing fee)$________
__________________________________% of ________.
(g) Transaction limitations
The minimum amount you may [withdraw/write a check for] is $______.
You may make ________ [deposits into/withdrawals from] your account each (time period).
You may not make [deposits into/withdrawals from] your account until the maturity date.
(h) Disclosures relating to time accounts
(i) Time requirements
Your account will mature on (date).
Your account will mature in (time period).
(ii) Early withdrawal penalties
We [will/may] impose a penalty if you withdraw [any/all] of the [deposited funds/principal] before the maturity date. The fee imposed will equal ______ days/week[s]/month[s] of interest.
or
We [will/may] impose a penalty of $______ if you withdraw [any/all] of the [deposited funds/principal] before the maturity date.
If you withdraw some of your funds before maturity, the interest rate for the remaining funds in your account will be ______% with an annual percentage yield of ______%.
(iii) Withdrawal of interest prior to maturity
The annual percentage yield assumes interest will remain on deposit until maturity. A withdrawal will reduce earnings.
(iv) Renewal policies
(1) Automatically renewable time accounts
This account will automatically renew at maturity.
You will have [______ calendar/business] days after the maturity date to withdraw funds without penalty.
or
There is no grace period following the maturity of this account to withdraw funds without penalty.
(2) Non-automatically renewable time accounts
This account will not renew automatically at maturity. If you do not renew the account, your deposit will be placed in [an interest-bearing/a noninterest-bearing] account.
(v) Required interest distribution.
This account requires the distribution of interest and does not allow interest to remain in the account.
(i) Bonuses
You will [be paid/receive] [$______ /(description of item)] as a bonus [when you open the account/on (date) ______].
You must maintain a minimum [daily balance/average daily balance] of $______ to obtain the bonus.
To earn the bonus, [$______ /your entire principal] must remain on deposit [for (time period)/until (date)______].
B-2--Model Clauses for Change in Terms
On (date), the cost of (type of fee) will increase to $______.
On (date), the interest rate on your account will decrease to ______% with an annual percentage yield of ______%.
On (date), the minimum [daily balance/average daily balance] required to avoid imposition of a fee will increase to $______.
B-3--Model Clauses for Pre-Maturity Notices for Time Accounts
(a) Automatically renewable time accounts with maturities of one year or less but longer than one month
Your account will mature on (date).
If the account renews, the new maturity date will be (date).
The interest rate for the renewed account will be ______% with an annual percentage yield of ______%.
or
The interest rate and annual percentage yield have not yet been determined. They will be available on (date). Please call (phone number) to learn the interest rate and annual percentage yield for your new account.
(b) Non-automatically renewable time accounts with maturities longer than one year
Your account will mature on (date).
If you do not renew the account, interest [will/will not] be paid after maturity.
Appendix C to Part 230--Effect on State Laws
(a) Inconsistent Requirements
State law requirements that are inconsistent with the requirements of the act and this part are preempted to the extent of the inconsistency. A state law is inconsistent if it requires a depository institution to make disclosures or take actions that contradict the requirements of the federal law. A state law is also contradictory if it requires the use of the same term to represent a different amount or a different meaning than the federal law, requires the use of a term different from that required in the federal law to describe the same item, or permits a method of calculating interest on an account different from that required in the federal law.
(b) Preemption Determinations
A depository institution, state, or other interested party may request the Board to determine whether a state law requirement is inconsistent with the federal requirements. A request for a determination shall be in writing and addressed to the Secretary, Board of Governors of the Federal Reserve System, Washington, DC 20551. Notice that the Board intends to make a determination (either on request or on its own motion) will be published in the Federal Register, with an opportunity for public comment unless the Board finds that notice and opportunity for comment would be impracticable, unnecessary, or contrary to the public interest and publishes its reasons for such decision. Notice of a final determination will be published in the Federal Register and furnished to the party who made the request and to the appropriate state official.
(c) Effect of Preemption Determinations
After the Board determines that a state law is inconsistent, a depository institution may not make disclosures using the inconsistent term or take actions relying on the inconsistent law.
(d) Reversal of Determination
The Board reserves the right to reverse a determination for any reason bearing on the coverage or effect of state or federal law. Notice of reversal of a determination will be published in the Federal Register and a copy furnished to the appropriate state official.
Appendix D to Part 230--Issuance of Staff Interpretations
Officials in the Board's Division of Consumer and Community Affairs are authorized to issue official staff interpretations of this part. These interpretations provide the protections afforded under section 271(f) of the act. Except in unusual circumstances, interpretations will not be issued separately but will be incorporated in an official commentary to this part, which will be amended periodically. No staff interpretations will be issued approving depository institutions' forms, statements, or calculation tools or methods.
Supplement I to Part 230--Official Staff Interpretations
Introduction
1. Official status. This commentary is the means by which the
Division of Consumer and Community Affairs of the Federal Reserve Board
issues official staff interpretations of Regulation DD. Good faith
compliance with this commentary affords protection from liability under
section 271(f) of the Truth in Savings Act.
Section 230.1 Authority, purpose, coverage, and effect on state laws
(c) Coverage
1. Foreign applicability. Regulation DD applies to all depository
institutions, except credit unions, that offer deposit accounts to
residents (including resident aliens) of any state as defined in
Sec. 230.2(r). Accounts held in an institution located in a state are
covered, even if funds are transferred periodically to a location
outside the United States. Accounts held in an institution located
outside the United States are not covered, even if held by a U.S.
resident.
2. Persons who advertise accounts. Persons who advertise accounts
are subject to the advertising rules. For example, if a deposit broker
places an advertisement offering consumers an interest in an account at
a depository institution, the advertising rules apply to the
advertisement, whether the account is to be held by the broker or
directly by the consumer.
Section 230.2 Definitions
(a) Account
1. Covered accounts. Examples of accounts subject to the regulation
are:
i. Interest-bearing and noninterest-bearing accounts
ii. Deposit accounts opened as a condition of obtaining a credit card
iii. Accounts denominated in a foreign currency
iv. Individual retirement accounts (IRAs) and simplified employee
pension (SEP) accounts
v. Payable on death (POD) or ``Totten trust'' accounts
2. Other accounts. Examples of accounts not subject to the
regulation are:
i. Mortgage escrow accounts for collecting taxes and property insurance
premiums
ii. Accounts established to make periodic disbursements on construction
loans
iii. Trust accounts opened by a trustee pursuant to a formal written
trust agreement (not merely declarations of trust on a
signature card such as a ``Totten trust,'' or an IRA and SEP
account)
iv. Accounts opened by an executor in the name of a decedent's estate
3. Other investments. The term ``account'' does not apply to all
products of a depository institution. Examples of products not covered
are:
i. Government securities
ii. Mutual funds
iii. Annuities
iv. Securities or obligations of a depository institution
v. Contractual arrangements such as repurchase agreements, interest rate
swaps, and bankers acceptances
(b) Advertisement
1. Covered messages. Advertisements include commercial messages in
visual, oral, or print media that invite, offer, or otherwise announce
generally to prospective customers the availability of consumer
accounts--such as:
i. Telephone solicitations
ii. Messages on automated teller machine (ATM) screens
iii. Messages on a computer screen in an institution's lobby (including
any printout) other than a screen viewed solely by the
institution's employee
iv. Messages in a newspaper, magazine, or promotional flyer or on radio
v. Messages that are provided along with information about the
consumer's existing account and that promote another account
at the institution
2. Other messages. Examples of messages that are not advertisements
are:
i. Rate sheets in a newspaper, periodical, or trade journal (unless the
depository institution, or a deposit broker offering accounts
at the institution, pays a fee for or otherwise controls
publication)
ii. In-person discussions with consumers about the terms for a specific
account
iii. Information given to consumers about existing accounts, such as
current rates recorded on a voice response machine or notices
for automatically renewable time accounts sent before renewal
(f) Bonus
1. Examples. Bonuses include items of value, other than interest,
offered as incentives to consumers, such as an offer to pay the final
installment deposit for a holiday club account. Items that are not a
bonus include discount coupons for goods or services at restaurants or
stores.
2. De minimis rule. Items with a de minimis value of $10 or less are
not bonuses. Institutions may rely on the valuation standard used by the
Internal Revenue Service to determine if the value of the item is de
minimis. Examples of items of de minimis value are:
i. Disability insurance premiums valued at an amount of $10 or less per
year
ii. Coffee mugs, T-shirts or other merchandise with a market value of
$10 or less
3. Aggregation. In determining if an item valued at $10 or less is a
bonus, institutions must aggregate per account per calendar year items
that may be given to consumers. In making this determination,
institutions aggregate per account only the market value of items that
may be given for a specific promotion. To illustrate, assume an
institution offers in January to give consumers an item valued at $7 for
each calendar quarter during the year that the average account balance
in a negotiable order of withdrawal (NOW) account exceeds $10,000. The
bonus rules are triggered, since consumers are eligible under the
promotion to receive up to $28 during the year. However, the bonus rules
are not triggered if an item valued at $7 is offered to consumers
opening a NOW account during the month of January, even though in
November the institution introduces a new promotion that includes, for
example, an offer to existing NOW account holders for an item valued at
$8 for maintaining an average balance of $5,000 for the month.
4. Waiver or reduction of a fee or absorption of expenses. Bonuses
do not include value that consumers receive through the waiver or
reduction of fees (even if the fees waived exceed $10) for banking-
related services such as the following:
i. A safe deposit box rental fee for consumers who open a new account
ii. Fees for travelers checks for account holders
iii. Discounts on interest rates charged for loans at the institution
(h) Consumer
1. Professional capacity. Examples of accounts held by a natural
person in a professional capacity for another are attorney-client trust
accounts and landlord-tenant security accounts.
2. Other accounts. Accounts not held in a professional capacity
include accounts held by an individual for a child under the Uniform
Gifts to Minors Act.
3. Sole proprietors. Accounts held by individuals as sole
proprietors are not covered.
4. Retirement plans. IRAs and SEP accounts are consumer accounts to
the extent that funds are invested in covered accounts. But Keogh
accounts are not subject to the regulation.
(j) Depository institution and institution
1. Foreign institutions. Branches of foreign institutions located in
the United States are subject to the regulation if they offer deposit
accounts to consumers. Edge Act and Agreement corporations, and agencies
of foreign institutions, are not depository institutions for purposes of
this regulation.
(k) Deposit broker
1. General. A deposit broker is a person who is in the business of
placing or facilitating the placement of deposits in an institution, as
defined by the Federal Deposit Insurance Act (12 U.S.C. 29(g)).
(n) Interest
1. Relation to Regulation Q. While bonuses are not interest for
purposes of this regulation, other regulations may treat them as the
equivalent of interest. For example, Regulation Q identifies payments of
cash or merchandise that violate the prohibition against paying interest
on demand accounts. (See 12 CFR Sec. 217.2(d).)
(p) Passbook savings account
1. Relation to Regulation E. Passbook savings accounts include
accounts accessed by preauthorized electronic fund transfers to the
account (as defined in 12 CFR Sec. 205.2(j)), such as an account that
receives direct deposit of social security payments. Accounts permitting
access by other electronic means are not ``passbook saving accounts''
and must comply with the requirements of Sec. 230.6 if statements are
sent four or more times a year.
(q) Periodic statement
1. Examples. Periodic statements do not include:
i. Additional statements provided solely upon request
ii. Information provided by computer through home banking services
iii. General service information such as a quarterly newsletter or other
correspondence describing available services and products
(t) Tiered-rate account
1. Time accounts. Time accounts paying different rates based solely
on the amount of the initial deposit are not tiered-rate accounts.
2. Minimum balance requirements. A requirement to maintain a minimum
balance to earn interest does not make an account a tiered-rate account.
(u) Time account
1. Club accounts. Although club accounts typically have a maturity
date, they are not time accounts unless they also require a penalty of
at least seven days' interest for withdrawals during the first six days
after the account is opened.
2. Relation to Regulation D. Regulation D permits in limited
circumstances the withdrawal of funds without penalty during the first
six days after a ``time deposit'' is opened. (See 12 CFR
Sec. 204.2(c)(1)(i).) But the fact that a consumer makes a withdrawal as
permitted by Regulation D does not disqualify the account from being a
time account for purposes of this regulation.
(v) Variable-rate account
1. General. A certificate of deposit permitting one or more rate
adjustments prior to maturity at the consumer's option is a variable-
rate account.
Section 230.3 General disclosure requirements
(a) Form
1. Design requirements. Disclosures must be presented in a format
that allows consumers to readily understand the terms of their account.
Institutions are not required to use a particular type size or typeface,
nor are institutions required to state any term more conspicuously than
any other term. Disclosures may be made:
i. In any order
ii. In combination with other disclosures or account terms
iii. In combination with disclosures for other types of accounts, as
long as it is clear to consumers which disclosures apply to
their account
iv. On more than one page and on the front and reverse sides
v. By using inserts to a document or filling in blanks
vi. On more than one document, as long as the documents are provided at
the same time
2. Consistent terminology. Institutions must use consistent
terminology to describe terms or features required to be disclosed. For
example, if an institution describes a monthly fee (regardless of
account activity) as a ``monthly service fee'' in account-opening
disclosures, the periodic statement and change-in-term notices must use
the same terminology so that consumers can readily identify the fee.
(b) General
1. Specificity of legal obligation. Institutions may refer to the
calendar month or to roughly equivalent intervals during a calendar year
as a ``month.''
(c) Relation to Regulation E
1. General rule. Compliance with Regulation E (12 CFR part 205) is
deemed to satisfy the disclosure requirements of this regulation, such
as when:
i. An institution changes a term that triggers a notice under Regulation
E, and uses the timing and disclosure rules of Regulation E
for sending change-in-term notices
ii. Consumers add an ATM access feature to an account, and the
institution provides disclosures pursuant to Regulation E,
including disclosure of fees (See 12 CFR Sec. 205.7.)
iii. An institution complying with the timing rules of Regulation E
discloses at the same time fees for electronic services (such
as for balance inquiry fees at ATMs) required to be disclosed
by this regulation but not by Regulation E
iv. An institution relies on Regulation E's rules regarding disclosure
of limitations on the frequency and amount of electronic fund
transfers, including security-related exceptions. But any
limitations on ``intra-institutional transfers'' to or from
the consumer's other accounts during a given time period must
be disclosed, even though intra-institutional transfers are
exempt from Regulation E.
(e) Oral response to inquiries
1. Application of rule. Institutions are not required to provide
rate information orally.
2. Relation to advertising. The advertising rules do not cover an
oral response to a question about rates.
3. Existing accounts. This paragraph does not apply to oral
responses about rate information for existing accounts. For example, if
a consumer holding a one-year certificate of deposit (CD) requests
interest rate information about the CD during the term, the institution
need not disclose the annual percentage yield.
(f) Rounding and accuracy rules for rates and yields
(f)(1) Rounding
1. Permissible rounding. Examples of permissible rounding are an
annual percentage yield calculated to be 5.644%, rounded down and
disclosed as 5.64%; 5.645% rounded up and disclosed as 5.65%.
(f)(2) Accuracy
1. Annual percentage yield and annual percentage yield earned. The
tolerance for annual percentage yield and annual percentage yield earned
calculations is designed to accommodate inadvertent errors. Institutions
may not purposely incorporate the tolerance into their calculation of
yields.
Section 230.4 Account disclosures
(a) Delivery of account disclosures
(a)(1) Account opening
1. New accounts. New account disclosures must be provided when:
i. A time account that does not automatically rollover is renewed by a
consumer
ii. A consumer changes a term for a renewable time account (see
Sec. 230.5(b)-5 regarding disclosure alternatives)
iii. An institution transfers funds from an account to open a new
account not at the consumer's request, unless the institution
previously gave account disclosures and any change-in-term
notices for the new account
iv. An institution accepts a deposit from a consumer to an account that
the institution had deemed closed for the purpose of treating
accrued but uncredited interest as forfeited interest (see
Sec. 230.7(b)-3)
2. Acquired accounts. New account disclosures need not be given when
an institution acquires an account through an acquisition of or merger
with another institution (but see Sec. 230.5(a) regarding advance notice
requirements if terms are changed).
(a)(2) Requests
(a)(2)(i)
1. Inquiries versus requests. A response to an oral inquiry (by
telephone or in person) about rates and yields or fees does not trigger
the duty to provide account disclosures. But when consumers ask for
written information about an account (whether by telephone, in person,
or by other means), the institution must provide disclosures unless the
account is no longer offered to the public.
2. General requests. When responding to a consumer's general request
for disclosures about a type of account (a NOW account, for example), an
institution that offers several variations may provide disclosures for
any one of them.
3. Timing for response. Ten business days is a reasonable time for
responding to requests for account information that consumers do not
make in person.
(a)(2)(ii)(A)
1. Recent rates. Institutions comply with this paragraph if they
disclose an interest rate and annual percentage yield accurate within
the seven calendar days preceding the date they send the disclosures.
(a)(2)(ii)(B)
1. Term. Describing the maturity of a time account as ``1 year'' or
``6 months,'' for example, illustrates a statement of the maturity of a
time account as a term rather than a date (``January 10, 1995'').
(b) Content of account disclosures
(b)(1) Rate information
(b)(1)(i) Annual percentage yield and interest rate
1. Rate disclosures. In addition to the interest rate and annual
percentage yield, institutions may disclose a periodic rate
corresponding to the interest rate. No other rate or yield (such as
``tax effective yield'') is permitted. If the annual percentage yield is
the same as the interest rate, institutions may disclose a single figure
but must use both terms.
2. Fixed-rate accounts. For fixed-rate time accounts paying the
opening rate until maturity, institutions may disclose the period of
time the interest rate will be in effect by stating the maturity date.
(See Appendix B, B-7--Sample Form.) For other fixed-rate accounts,
institutions may use a date (``This rate will be in effect through May
4, 1995'') or a period (``This rate will be in effect for at least 30
days'').
3. Tiered-rate accounts. Each interest rate, along with the
corresponding annual percentage yield for each specified balance level
(or range of annual percentage yields, if appropriate), must be
disclosed for tiered-rate accounts. (See Appendix A, Part I, Paragraph
D.)
4. Stepped-rate accounts. A single composite annual percentage yield
must be disclosed for stepped-rate accounts. (See Appendix A, Part I,
Paragraph B.) The interest rates and the period of time each will be in
effect also must be provided. When the initial rate offered for a
specified time on a variable-rate account is higher or lower than the
rate that would otherwise be paid on the account, the calculation of the
annual percentage yield must be made as if for a stepped-rate account.
(See Appendix A, Part I, Paragraph C.)
(b)(1)(ii) Variable rates
(b)(1)(ii)(B)
1. Determining interest rates. To disclose how the interest rate is
determined, institutions must:
i. Identify the index and specific margin, if the interest rate is tied
to an index
ii. State that rate changes are within the institution's discretion, if
the institution does not tie changes to an index
(b)(1)(ii)(C)
1. Frequency of rate changes. An institution reserving the right to
change rates at its discretion must state the fact that rates may change
at any time.
(b)(1)(ii)(D)
1. Limitations. A floor or ceiling on rates or on the amount the
rate may decrease or increase during any time period must be disclosed.
Institutions need not disclose the absence of limitations on rate
changes.
(b)(2) Compounding and crediting
(b)(2)(ii) Effect of closing an account
1. Deeming an account closed. An institution may, subject to state
or other law, provide in its deposit contracts the actions by consumers
that will be treated as closing the account and that will result in the
forfeiture of accrued but uncredited interest. An example is the
withdrawal of all funds from the account prior to the date that interest
is credited.
(b)(3) Balance information
(b)(3)(ii) Balance computation method
1. Methods and periods. Institutions may use different methods or
periods to calculate minimum balances for purposes of imposing a fee
(the daily balance for a calendar month, for example) and accruing
interest (the average daily balance for a statement period, for
example). Each method and corresponding period must be disclosed.
(b)(3)(iii) When interest begins to accrue
1. Additional information. Institutions may disclose additional
information such as the time of day after which deposits are treated as
having been received the following business day, and may use additional
descriptive terms such as ``ledger'' or ``collected'' balances to
disclose when interest begins to accrue.
(b)(4) Fees
1. Covered fees. The following are types of fees that must be
disclosed:
i. Maintenance fees, such as monthly service fees
ii. Fees to open or to close an account
iii. Fees related to deposits or withdrawals, such as fees for use of
the institution's ATMs
iv. Fees for special services, such as stop-payment fees, fees for
balance inquiries or verification of deposits, fees associated
with checks returned unpaid, and fees for regularly sending to
consumers checks that otherwise would be held by the
institution
2. Other fees. Institutions need not disclose fees such as the
following:
i. Fees for services offered to account and nonaccount holders alike,
such as travelers checks and wire transfers (even if different
amounts are charged to account and nonaccount holders)
ii. Incidental fees, such as fees associated with state escheat laws,
garnishment or attorneys fees, and fees for photocopying
3. Amount of fees. Institutions must state the amount and conditions
under which a fee may be imposed. Naming and describing the fee (such as
``$4.00 monthly service fee'') will typically satisfy these
requirements.
4. Tied-accounts. Institutions must state if fees that may be
assessed against an account are tied to other accounts at the
institution. For example, if an institution ties the fees payable on a
NOW account to balances held in the NOW account and a savings account,
the NOW account disclosures must state that fact and explain how the fee
is determined.
(b)(5) Transaction limitations
1. General rule. Examples of limitations on the number or dollar
amount of deposits or withdrawals that institutions must disclose are:
i. Limits on the number of checks that may be written on an account
within a given time period
ii. Limits on withdrawals or deposits during the term of a time account
iii. Limitations required by Regulation D on the number of withdrawals
permitted from money market deposit accounts by check to third
parties each month. Institutions need not disclose
reservations of right to require notices for withdrawals from
accounts required by federal or state law.
(b)(6) Features of time accounts
(b)(6)(i) Time requirements
1. ``Callable'' time accounts. In addition to the maturity date, an
institution must state the date or the circumstances under which it may
redeem a time account at the institution's option (a ``callable'' time
account).
(b)(6)(ii) Early withdrawal penalties
1. General. The term ``penalty'' may but need not be used to
describe the loss of interest that consumers may incur for early
withdrawal of funds from time accounts.
2. Examples. Examples of early withdrawal penalties are:
i. Monetary penalties, such as ``$10.00'' or ``seven days' interest plus
accrued but uncredited interest''
ii. Adverse changes to terms such as a lowering of the interest rate,
annual percentage yield, or compounding frequency for funds
remaining on deposit
iii. Reclamation of bonuses
3. Relation to rules for IRAs or similar plans. Penalties imposed by
the Internal Revenue Code for certain withdrawals from IRAs or similar
pension or savings plans are not early withdrawal penalties for purposes
of this regulation.
4. Disclosing penalties. Penalties may be stated in months, whether
institutions assess the penalty using the actual number of days during
the period or using another method such as a number of days that occurs
in any actual sequence of the total calendar months involved. For
example, stating ``one month's interest'' is permissible, whether the
institution assesses 30 days' interest during the month of April, or
selects a time period between 28 and 31 days for calculating the
interest for all early withdrawals regardless of when the penalty is
assessed.
(b)(6)(iv) Renewal policies
1. Rollover time accounts. Institutions offering a grace period on
time accounts that automatically renew need not state whether interest will
be paid if the funds are withdrawn during the grace period.
2. Nonrollover time accounts. Institutions paying interest on funds
following the maturity of time accounts that do not renew automatically
need not state the rate (or annual percentage yield) that may be paid.
(See Appendix B, Model Clause B-1(h)(iv)(2).)
Section 230.5 Subsequent disclosures
(a) Change in terms
(a)(1) Advance notice required
1. Form of notice. Institutions may provide a change-in-term notice
on or with a periodic statement or in another mailing. If an institution
provides notice through revised account disclosures, the changed term
must be highlighted in some manner. For example, institutions may note
that a particular fee has been changed (also specifying the new amount)
or use an accompanying letter that refers to the changed term.
2. Effective date. An example of language for disclosing the
effective date of a change is ``As of November 21, 1994.''
3. Terms that change upon the occurrence of an event. An institution
offering terms that will automatically change upon the occurrence of a
stated event need not send an advance notice of the change provided the
institution fully describes the conditions of the change in the account
opening disclosures (and sends any change-in-term notices regardless of
whether the changed term affects that consumer's account at that time).
4. Examples. Examples of changes not requiring an advance change-in-
terms notice are:
i. The termination of employment for consumers for whom account
maintenance or activity fees were waived during their
employment by the depository institution
ii. The expiration of one year in a promotion described in the account
opening disclosures to ``waive $4.00 monthly service charges
for one year''
(a)(2) No notice required
(a)(2)(ii) Check printing fees
1. Increase in fees. A notice is not required for an increase in
fees for printing checks (or deposit and withdrawal slips) even if the
institution adds some amount to the price charged by the vendor.
(b) Notice before maturity for time accounts longer than one month
that renew automatically
1. Maturity dates on nonbusiness days. In determining the term of a
time account, institutions may disregard the fact that the term will be
extended beyond the disclosed number of days because the disclosed
maturity falls on a nonbusiness day. For example, a holiday or weekend
may cause a ``one-year'' time account to extend beyond 365 days (or 366,
in a leap year) or a ``one-month'' time account to extend beyond 31
days.
2. Disclosing when rates will be determined. Ways to disclose when
the annual percentage yield will be available include the use of:
i. A specific date, such as ``October 28''
ii. A date that is easily determinable, such as ``the Tuesday before the
maturity date stated on this notice'' or ``as of the maturity
date stated on this notice''
3. Alternative timing rule. Under the alternative timing rule, an
institution offering a 10-day grace period would have to provide the
disclosures at least 10 days prior to the scheduled maturity date.
4. Club accounts. If consumers have agreed to the transfer of
payments from another account to a club time account for the next club
period, the institution must comply with the requirements for
automatically renewable time accounts--even though consumers may
withdraw funds from the club account at the end of the current club
period.
5. Renewal of a time account. In the case of a change in terms that
becomes effective if a rollover time account is subsequently renewed:
i. If the change is initiated by the institution, the disclosure
requirements of this paragraph apply. (Paragraph 230.5(a)
applies if the change becomes effective prior to the maturity
of the existing time account.)
ii. If the change is initiated by the consumer, the account opening
disclosure requirements of Sec. 230.4(b) apply. (If the notice
required by this paragraph has been provided, institutions may
give new account disclosures or disclosures highlighting only
the new term.)
6. Example. If a consumer receives a prematurity notice on a one-
year time account and requests a rollover to a six-month account, the
institution must provide either account opening disclosures including
the new maturity date or, if all other terms previously disclosed in the
prematurity notice remain the same, only the new maturity date.
(b)(1) Maturities of longer than one year
1. Highlighting changed terms. Institutions need not highlight terms
that changed since the last account disclosures were provided.
(c) Notice for time accounts one month or less that renew
automatically
(d) Notice before maturity for time accounts longer than one year
that do not renew automatically
1. Subsequent account. When funds are transferred following maturity
of a nonrollover time account, institutions need not provide account
disclosures unless a new account is established.
Section 230.6 Periodic statement disclosures
(a) General rule
1. General. Institutions are not required to provide periodic
statements. If they do provide statements, disclosures need only be
furnished to the extent applicable. For example, if no interest is
earned for a statement period, institutions need not state that fact.
Or, institutions may disclose ``$0'' interest earned and ``0%'' annual
percentage yield earned.
2. Regulation E interim statements. When an institution provides
regular quarterly statements, and in addition provides a monthly interim
statement to comply with Regulation E, the interim statement need not
comply with this section unless it states interest or rate information.
(See 12 CFR Sec. 205.9(b).)
3. Combined statements. Institutions may provide information about
an account (such as an MMDA) on the periodic statement for another
account (such as a NOW account) without triggering the disclosures
required by this section, as long as:
i. The information is limited to the account number, the type of
account, or balance information, and
ii. The institution also provides a periodic statement complying with
this section for each account.
4. Other information. Additional information that may be given on or
with a periodic statement includes:
i. Interest rates and corresponding periodic rates applied to balances
during the statement period
ii. The dollar amount of interest earned year-to-date
iii. Bonuses paid (or any de minimis consideration of $10 or less)
iv. Fees for products such as safe deposit boxes
(a)(1) Annual percentage yield earned
1. Ledger and collected balances. Institutions that accrue interest
using the collected balance method may use either the ledger or the
collected balance in determining the annual percentage yield earned.
(a)(2) Amount of interest
1. Accrued interest. Institutions must state the amount of interest
that accrued during the statement period, even if it was not credited.
2. Terminology. In disclosing interest earned for the period,
institutions must use the term ``interest'' or terminology such as:
i. ``Interest paid,'' to describe interest that has been credited
ii. ``Interest accrued'' or ``interest earned,'' to indicate that
interest is not yet credited
3. Closed accounts. If consumers close an account between crediting
periods and forfeits accrued interest, the institution may not show any
figures for interest earned or annual percentage yield earned for the
period (other than zero, at the institution's option).
(a)(3) Fees imposed
1. General. Periodic statements must state fees disclosed under
Sec. 230.4(b) that were debited to the account during the statement
period, even if assessed for an earlier period.
2. Itemizing fees by type. In itemizing fees imposed more than once
in the period, institutions may group fees if they are the same type.
But the description must make clear that the dollar figure represents
more than a single fee, for example, ``total fees for checks written
this period.'' Examples of fees that may not be grouped together are:
i. Monthly maintenance and excess activity fees
ii. ``Transfer'' fees, if different dollar amounts are imposed--such as
$.50 for deposits and $1.00 for withdrawals
iii. Fees for electronic fund transfers and fees for other services,
such as balance inquiry or maintenance fees
3. Identifying fees. Statement details must enable consumers to
identify the specific fee. For example:
i. Institutions may use a code to identify a particular fee if the code
is explained on the periodic statement or in documents
accompanying the statement.
ii. Institutions using debit slips may disclose the date the fee was
debited on the periodic statement and show the amount and type
of fee on the dated debit slip.
4. Relation to Regulation E. Disclosure of fees in compliance with
Regulation E complies with this section for fees related to electronic
fund transfers (for example, totaling all electronic funds transfer fees
in a single figure).
(a)(4) Length of period
1. General. Institutions providing the beginning and ending dates of
the period must make clear whether both dates are included in the
period.
2. Opening or closing an account mid-cycle. If an account is opened
or closed during the period for which a statement is sent, institutions
must calculate the annual percentage yield earned based on account
balances for each day the account was open.
(b) Special rule for average daily balance method
1. Monthly statements and quarterly compounding. This rule applies,
for example, when an institution calculates interest on a quarterly
average daily balance and sends monthly statements. In this case, the
first two monthly statements would omit annual percentage yield earned
and interest earned figures; the third monthly statement would reflect
the interest earned and the annual percentage yield earned for the
entire quarter.
2. Length of the period. Institutions must disclose the length of
both the interest calculation period and the statement period. For
example, a statement could disclose a statement period of April 16
through May 15 and further state that ``the interest earned and the
annual percentage yield earned are based on your average daily balance
for the period April 1 through April 30.''
3. Quarterly statements and monthly compounding. Institutions that
use the average daily balance method to calculate interest on a monthly
basis and that send statements on a quarterly basis may disclose a
single interest (and annual percentage yield earned) figure.
Alternatively, an institution may disclose three interest and three
annual percentage yield earned figures, one for each month in the
quarter, as long as the institution states the number of days (or
beginning and ending dates) in the interest period if different from the
statement period.
Section 230.7 Payment of interest
(a)(1) Permissible methods
1. Prohibited calculation methods. Calculation methods that do not
comply with the requirement to pay interest on the full amount of
principal in the account each day include:
i. Paying interest on the balance in the account at the end of the
period (the ``ending balance'' method)
ii. Paying interest for the period based on the lowest balance in the
account for any day in that period (the ``low balance''
method)
iii. Paying interest on a percentage of the balance, excluding the
amount set aside for reserve requirements (the ``investable
balance'' method)
2. Use of 365-day basis. Institutions may apply a daily periodic
rate greater than 1/365 of the interest rate--such as 1/360 of the
interest rate--as long as it is applied 365 days a year.
3. Periodic interest payments. An institution can pay interest each
day on the account and still make uniform interest payments. For
example, for a one-year certificate of deposit an institution could make
monthly interest payments equal to 1/12 of the amount of interest that
will be earned for a 365-day period (or 11 uniform monthly payments--
each equal to roughly 1/12 of the total amount of interest--and one
payment that accounts for the remainder of the total amount of interest
earned for the period).
4. Leap year. Institutions may apply a daily rate of 1/366 or 1/365
of the interest rate for 366 days in a leap year, if the account will
earn interest for February 29.
5. Maturity of time accounts. Institutions are not required to pay
interest after time accounts mature. (See 12 CFR part 217, the Board's
Regulation Q, for limitations on duration of interest payments.)
Examples include:
i. During a grace period offered for an automatically renewable time
account, if consumers decide during that period not to renew
the account
ii. Following the maturity of nonrollover time accounts
iii. When the maturity date falls on a holiday, and consumers must wait
until the next business day to obtain the funds
6. Dormant accounts. Institutions must pay interest on funds in an
account, even if inactivity or the infrequency of transactions would
permit the institution to consider the account to be ``inactive'' or
``dormant'' (or similar status) as defined by state or other law or the
account contract.
(a)(2) Determination of minimum balance to earn interest
1. Daily balance accounts. Institutions that require a minimum
balance may choose not to pay interest for days when the balance drops
below the required minimum, if they use the daily balance method to
calculate interest.
2. Average daily balance accounts. Institutions that require a
minimum balance may choose not to pay interest for the period in which
the balance drops below the required minimum, if they use the average
daily balance method to calculate interest.
3. Beneficial method. Institutions may not require that consumers
maintain both a minimum daily balance and a minimum average daily
balance to earn interest, such as by requiring consumers to maintain a
$500 daily balance and a prescribed average daily balance (whether
higher or lower). But an institution could offer a minimum balance to
earn interest that includes an additional method that is ``unequivocally
beneficial'' to consumers such as the following: An institution using
the daily balance method to calculate interest and requiring a $500
minimum daily balance could offer to pay interest on the account for
those days the minimum balance is not met as long as consumers maintain
an average daily balance throughout the month of $400.
4. Paying on full balance. Institutions must pay interest on the
full balance in the account that meets the required minimum balance. For
example, if $300 is the minimum daily balance required to earn interest,
and a consumer deposits $500, the institution must pay the stated
interest rate on the full $500 and not just on $200.
5. Negative balances prohibited. Institutions must treat a negative
account balance as zero to determine:
i. The daily or average daily balance on which interest will be paid
ii. Whether any minimum balance to earn interest is met
6. Club accounts. Institutions offering club accounts (such as a
``holiday'' or ``vacation'' club) cannot impose a minimum balance
requirement for interest based on the total number or dollar amount of
payments required under the club plan. For example, if a plan calls for
$10 weekly payments for 50 weeks, the institution cannot
set a $500 ``minimum balance'' and then pay interest only if the
consumer has made all 50 payments.
7. Minimum balances not affecting interest. Institutions may use the
daily balance, average daily balance, or any other computation method to
calculate minimum balance requirements not involving the payment of
interest--such as to compute minimum balances for assessing fees.
(b) Compounding and crediting policies
1. General. Institutions choosing to compound interest may compound
or credit interest annually, semi-annually, quarterly, monthly, daily,
continuously, or on any other basis.
2. Withdrawals prior to crediting date. If consumers withdraw funds
(without closing the account) prior to a scheduled crediting date,
institutions may delay paying the accrued interest on the withdrawn
amount until the scheduled crediting date, but may not avoid paying
interest.
3. Closed accounts. Subject to state or other law, an institution
may choose not to pay accrued interest if consumers close an account
prior to the date accrued interest is credited, as long as the
institution has disclosed that fact.
(c) Date interest begins to accrue
1. Relation to Regulation CC. Institutions may rely on the Expedited
Funds Availability Act (EFAA) and Regulation CC (12 CFR part 229) to
determine, for example, when a deposit is considered made for purposes
of interest accrual, or when interest need not be paid on funds because
a deposited check is later returned unpaid.
2. Ledger and collected balances. Institutions may calculate
interest by using a ``ledger'' or ``collected'' balance method, as long
as the crediting requirements of the EFAA are met (12 CFR 229.14).
3. Withdrawal of principal. Institutions must accrue interest on
funds until the funds are withdrawn from the account. For example, if a
check is debited to an account on a Tuesday, the institution must accrue
interest on those funds through Monday.
Section 230.8 Advertising
(a) Misleading or inaccurate advertisements
1. General. All advertisements are subject to the rule against
misleading or inaccurate advertisements, even though the disclosures
applicable to various media differ.
2. Indoor signs. An indoor sign advertising an annual percentage
yield is not misleading or inaccurate when:
i. For a tiered-rate account, it also provides the lower dollar amount
of the tier corresponding to the advertised annual percentage
yield
ii. For a time account, it also provides the term required to obtain the
advertised annual percentage yield
3. Fees affecting ``free'' accounts. For purposes of determining
whether an account can be advertised as ``free'' or ``no cost,''
maintenance and activity fees include:
i. Any fee imposed when a minimum balance requirement is not met, or
when consumers exceed a specified number of transactions
ii. Transaction and service fees that consumers reasonably expect to be
imposed on a regular basis
iii. A flat fee, such as a monthly service fee
iv. Fees imposed to deposit, withdraw, or transfer funds, including per-
check or per-transaction charges (for example, $.25 for each
withdrawal, whether by check or in person)
4. Other fees. Examples of fees that are not maintenance or activity
fees include:
i. Fees not required to be disclosed under Sec. 230.4(b)(4)
ii. Check printing fees
iii. Balance inquiry fees
iv. Stop-payment fees and fees associated with checks returned unpaid
v. Fees assessed against a dormant account
vi. Fees for ATM or electronic transfer services (such as preauthorized
transfers or home banking services) not required to obtain an
account
5. Similar terms. An advertisement may not use the term ``fees
waived'' if a maintenance or activity fee may be imposed because it is
similar to the terms ``free'' or ``no cost.''
6. Specific account services. Institutions may advertise a specific
account service or feature as free if no fee is imposed for that service
or feature. For example, institutions offering an account that is free
of deposit or withdrawal fees could advertise that fact, as long as the
advertisement does not mislead consumers by implying that the account is
free and that no other fee (a monthly service fee, for example) may be
charged.
7. Free for limited time. If an account (or a specific account
service) is free only for a limited period of time--for example, for one
year following the account opening--the account (or service) may be
advertised as free if the time period is also stated.
8. Conditions not related to deposit accounts. Institutions may
advertise accounts as ``free'' for consumers meeting conditions not
related to deposit accounts, such as the consumer's age. For example,
institutions may advertise a NOW account as ``free for persons over 65
years old,'' even though a maintenance or activity fee is assessed on
accounts held by consumers 65 or younger.
(b) Permissible rates
1. Tiered-rate accounts. An advertisement for a tiered-rate account
that states an annual percentage yield must also state the annual
percentage yield for each tier, along with corresponding minimum balance
requirements. Any interest rates stated must appear in conjunction with
the applicable annual percentage yields for each tier.
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.
3. Representative examples. An advertisement that states an annual
percentage yield for a given type of account (such as a time account for
a specified term) need not state the annual percentage yield applicable
to other time accounts offered by the institution or indicate that other
maturity terms are available. In an advertisement stating that rates for
an account may vary depending on the amount of the initial deposit or
the term of a time account, institutions need not list each balance
level and term offered. Instead, the advertisement may:
i. Provide a representative example of the annual percentage yields
offered, clearly described as such. For example, if an
institution offers a $25 bonus on all time accounts and the
annual percentage yield will vary depending on the term
selected, the institution may provide a disclosure of the
annual percentage yield as follows: ``For example, our 6-month
certificate of deposit currently pays a 3.15% annual
percentage yield.''
ii. Indicate that various rates are available, such as by stating short-
term and longer-term maturities along with the applicable
annual percentage yields: ``We offer certificates of deposit
with annual percentage yields that depend on the maturity you
choose. For example, our one-month CD earns a 2.75% APY. Or,
earn a 5.25% APY for a three-year CD.''
(c) When additional disclosures are required
1. Trigger terms. The following are examples of information stated
in advertisements that are not ``trigger'' terms:
i. ``One, three, and five year CDs available''
ii. ``Bonus rates available''
iii. ``1% over our current rates,'' so long as the rates are not
determinable from the advertisement
(c)(2) Time annual percentage yield is offered
1. Specified date. If an advertisement discloses an annual
percentage yield as of a specified date, that date must be recent in
relation to the publication or broadcast frequency of the media used,
taking into account the particular circumstances or production deadlines
involved. For example, the printing date of a brochure printed once for
a deposit account promotion that will be in effect for six months would
be considered ``recent,'' even though rates change during the six-month
period. Rates published in a daily newspaper or on television must
reflect rates offered shortly before (or on) the date the rates are
published or broadcast.
2. Reference to date of publication. An advertisement may refer to
the annual percentage yield as being accurate as of the date of
publication, if the date is on the publication itself. For instance, an
advertisement in a periodical may state that a rate is ``current through
the date of this issue,'' if the periodical shows the date.
(c)(5) Effect of fees
1. Scope. This requirement applies only to maintenance or activity
fees described in paragraph 8(a).
(c)(6) Features of time accounts
(c)(6)(i) Time requirements
1. Club accounts. If a club account has a maturity date but the term
may vary depending on when the account is opened, institutions may use a
phrase such as: ``The maturity date of this club account is November 15;
its term varies depending on when the account is opened.''
(c)(6)(ii) Early withdrawal penalties
1. Discretionary penalties. Institutions imposing early withdrawal
penalties on a case-by-case basis may disclose that they ``may'' (rather
than ``will'') impose a penalty if such a disclosure accurately
describes the account terms.
(d) Bonuses
1. General reference to ``bonus.'' General statements such as
``bonus checking'' or ``get a bonus when you open a checking account''
do not trigger the bonus disclosures.
(e) Exemption for certain advertisements
(e)(1) Certain media
(e)(1)(iii)
1. Tiered-rate accounts. Solicitations for a tiered-rate account
made through telephone response machines must provide the annual
percentage yields and the balance requirements applicable to each tier.
(e)(2) Indoor signs
(e)(2)(i)
1. General. Indoor signs include advertisements displayed on
computer screens, banners, preprinted posters, and chalk or peg boards.
Any advertisement inside the premises that can be retained by a consumer
(such as a brochure or a printout from a computer) is not an indoor
sign.
Section 230.9 Enforcement and record retention
(c) Record retention
1. Evidence of required actions. Institutions comply with the
regulation by demonstrating that they have done the following:
i. Established and maintained procedures for paying interest and
providing timely disclosures as required by the regulation,
and
ii. Retained sample disclosures for each type of account offered to
consumers, such as account-opening disclosures, copies of
advertisements, and change-in-term notices; and information
regarding the interest rates and annual percentage yields
offered.
2. Methods of retaining evidence. Institutions must be able to
reconstruct the required disclosures or other actions. They need not
keep disclosures or other business records in hard copy. Records
evidencing compliance may be retained on microfilm, microfiche, or by
other methods that reproduce records accurately (including computer
files).
3. Payment of interest. Institutions must retain sufficient rate and
balance information to permit the verification of interest paid on an
account, including the payment of interest on the full principal
balance.
Appendix A to Part 230--Annual Percentage Yield Calculation
Part I. Annual Percentage Yield for Account Disclosures and Advertising
Purposes
1. Rounding for calculations. The following are examples of
permissible rounding for calculating interest and the annual percentage
yield:
i. The daily rate applied to a balance carried to five or more decimal
places
ii. The daily interest earned carried to five or more decimal places
Part II. Annual Percentage Yield Earned for Periodic Statements
1. Balance method. The interest figure used in the calculation of
the annual percentage yield earned may be derived from the daily balance
method or the average daily balance method. The balance used in the
formula for the annual percentage yield earned is the sum of the
balances for each day in the period divided by the number of days in the
period.
2. Negative balances prohibited. Institutions must treat a negative
account balance as zero to determine the balance on which the annual
percentage yield earned is calculated. (See commentary to
Sec. 230.7(a)(2).)
A. General Formula
1. Accrued but uncredited interest. To calculate the annual
percentage yield earned, accrued but uncredited interest:
i. May not be included in the balance for statements issued at the same
time or less frequently than the account's compounding and
crediting frequency. For example, if monthly statements are
sent for an account that compounds interest daily and credits
interest monthly, the balance may not be increased each day to
reflect the effect of daily compounding.
ii. Must be included in the balance for succeeding statements if a
statement is issued more frequently than compounded interest
is credited on an account. For example, if monthly statements
are sent for an account that compounds interest daily and
credits interest quarterly, the balance for the second monthly
statement would include interest that had accrued for the
prior month.
2. Rounding. The interest earned figure used to calculate the annual
percentage yield earned must be rounded to two decimals and reflect the
amount actually paid. For example, if the interest earned for a
statement period is $20.074 and the institution pays the consumer
$20.07, the institution must use $20.07 (not $20.074) to calculate the
annual percentage yield earned. For accounts paying interest based on
the daily balance method that compound and credit interest quarterly,
and send monthly statements, the institution may, but need not, round
accrued interest to two decimals for calculating the annual percentage
yield earned on the first two monthly statements issued during the
quarter. However, on the quarterly statement the interest earned figure
must reflect the amount actually paid.
B. Special Formula for Use Where Periodic Statement is Sent More Often
Than the Period for Which Interest is Compounded
1. Statements triggered by Regulation E. Institutions may, but need
not, use this formula to calculate the annual percentage yield earned
for accounts that receive quarterly statements and are subject to
Regulation E's rule calling for monthly statements when an electronic
fund transfer has occurred. They may do so even though no monthly
statement was issued during a specific quarter. But institutions must
use this formula for accounts that compound and credit interest
quarterly and receive monthly statements that, while triggered by
Regulation E, comply with the provisions of Sec. 230.6.
2. Days in compounding period. Institutions using the special annual
percentage yield earned formula must use the actual number of days in
the compounding period.
Appendix B to Part 230--Model Clauses and Sample Forms
1. Modifications. Institutions that modify the model clauses will be
deemed in compliance as long as they do not delete required information
or rearrange the format in a way that affects the substance or clarity
of the disclosures.
2. Format. Institutions may use inserts to a document (see Sample
Form B-4) or fill-in blanks (see Sample Forms B-5, B-6 and B-7, which use
underlining to indicate terms that have been filled in) to
show current rates, fees, or other terms.
3. Disclosures for opening accounts. The sample forms illustrate the
information that must be provided to consumers when an account is
opened, as required by Sec. 230.4(a)(1). (See Sec. 230.4(a)(2), which
states the requirements for disclosing the annual percentage yield, the
interest rate, and the maturity of a time account in responding to a
consumer's request.)
4. Compliance with Regulation E. Institutions may satisfy certain
requirements under Regulation DD with disclosures that meet the
requirements of Regulation E. (See Sec. 230.3(c).) For disclosures
covered by both this regulation and Regulation E (such as the amount of
fees for ATM usage, institutions should consult appendix A to Regulation
E for appropriate model clauses.
5. Duplicate disclosures. If a requirement such as a minimum balance
applies to more than one account term (to obtain a bonus and determine
the annual percentage yield, for example), institutions need not repeat
the requirement for each term, as long as it is clear which terms the
requirement applies to.
6. Sample forms. The sample forms (B-4 through B-8) serve a purpose
different from the model clauses. They illustrate ways of adapting the
model clauses to specific accounts. The clauses shown relate only to the
specific transactions described.
B-1 Model Clauses for Account Disclosures
B-1(h) Disclosures Relating to Time Accounts
1. Maturity. The disclosure in Clause (h)(i) stating a specific date
may be used in all cases. The statement describing a time period is
appropriate only when providing disclosures in response to a consumer's
request.
B-2 Model Clauses for Change in Terms
1. General. The second clause, describing a future decrease in the
interest rate and annual percentage yield, applies to fixed-rate
accounts only.
B-4 Sample Form (Multiple Accounts)
1. Rate sheet insert. In the rate sheet insert, the calculations of
the annual percentage yield for the three-month and six-month
certificates are based on 92 days and 181 days respectively. All
calculations in the insert assume daily compounding.
B-6 Sample Form (Tiered-Rate Money Market Account)
1. General. Sample Form B-6 uses Tiering Method A (discussed in
Appendix A and Clause (a)(iv)) to calculate interest. It gives a
narrative description of a tiered-rate account; institutions may use
different formats (for example, a chart similar to the one in Sample
Form B-4), as long as all required information for each tier is clearly
presented. The form does not contain a separate disclosure of the
minimum balance required to obtain the annual percentage yield; the
tiered-rate disclosure provides that information.