The Federal Reserve Board has finalized a three-year-old interim rule governing interest rate disclosures on certain certificates of deposit.

As of Aug. 28, the new rule lets banks disclose the simple interest rate-rather than the annual percentage yield-on CDs with maturities of more than a year that distribute interest at least annually rather than compounding it in a depositor's account. Banks must tell consumers that the interest is distributed, not accrued.

The July 27 rule is necessary because the standard annual percentage yield calculation required by the Truth in Savings Act would underestimate the interest rate actually earned by these CDs. This is because in calculating APY, it is assumed that interest is not withdrawn until maturity.

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