Full text of Federal Reserve Bank of New York Circulars : 10677. Truth in Savings

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No.

10677 "1

December 16, 1993

J

TRUTH IN SAVINGS
Proposed Amendments toRegulation DD
To All Depository Institutions in the Second Federal
Reserve District, and Others Concerned:

The following statement has been issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has issued for public comment proposed amendments to its
Regulation DD, Truth in Savings. These proposed changes would provide greater precision in calculating
the annual percentage yields (APY) for certain accounts.
Comment is requested by January 13, 1994.
Under the proposed revisions, the APY would reflect not only the effect of compounding but also
the time value of money for consumers who receive interest payments during the term of the account.
The amendments would not affect accounts that make a single interest payment at maturity (whether
or not compounding occurs), nor would they affect most accounts with daily compounding.
The Board is also asking for comments on whether a narrower approach is preferable or if the
regulation should remain unchanged, given the potential burden associated with implementing a different
calculation method at this time.

Printed below is the text of the proposed amendments to the Board’s Regulation DD, “Truth
in Savings,” which has been reprinted from the Federal Register of December 6. Comments thereon
should be submitted by January 13, 1994, and may be sent to the Board of Governors, as specified
in the notice, or to our Compliance Examinations Department.
W il l ia m J. M c D o n o u g h ,

President.

FEDERAL RESERVE SYSTEM
12 CFR Part 230
[Regulation DO; Docket No. R-0812]

Truth in Savings; Proposed Regulatory
Amendment
AGENCY: Board of Governors of the

Federal Reserve System.
ACTION: Proposed rule.________________
The Board is publishing for
comment proposed amendments to
Regulation DD (Truth in Savings) to
provide a more precise calculation of
annual percentage yields (APYs) for
certain accounts under a uniform
SUMMARY:




method that gives consumers an
enhanced basis for comparing across a
broad range of accounts. This action is
taken in response to difficulties that
some institutions have experienced with
the current formula. Under the proposal,
the APY would reflect not only the
effect of compounding but also the time
value of money for consumers who
receive interest payments during the
term of the account. The amendments
would not affect accounts that make a
single interest payment at maturity
(whether or not compounding occurs),
nor would they affect most accounts
with daily compounding. The Board
also solicits comment on whether taking
a narrower approach—or leaving the

regulation unchanged—is preferable,
given the potential burden associated
with implementing a different
calculation method at this time.
DATES: Comments must be received on
or before January 13,1994.
ADDRESSES: Comments should refer to
Docket No. R-0812, and may be mailed
to William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue NW., Washington, DC 20551.
Comments also may be delivered to
Room B—2222 of the Eccles Building
between 8:45 a.m. and 5:15 p.m.
weekdays, or to the guard station in the
Eccles Building courtyard on 20th Street

Federal Register / Vol. 53, No. 232 / Monday, December 6, 19S3 / Proposed Rules
NVV. (betw een C o nstitution A ven ue and
C Street) at any tim e. C om m en ts m ay be
in sp ected in Room M P -5 0 0 of the
M artin B uilding b etw een 9 a.m . and 5
p m . w eek days, e x ce p t as p rovided in 12
C FR 2 6 1 .8 of the B o ard ’s ru les regarding
th e availab ility of in form ation .
F O .l F U R T H E R tB F O R M A T iC H C O N T A C T : Jane
A h ren s, K yung C ho, K urt S ch u m ach er
or M ary Jane S eek ach , Staff A ttorn eys,
D ivision o f C o n su m er an d C om m unity
A ffairs, E oard o f G overnors o f the
F ed eral R eserve S ystem , at (2 0 2 ) 4 5 2 3 6 6 7 o r 4 5 2 - 2 4 1 2 ; for question s
asso ciated w ith th e regulatory flexibility
an alysis, G regory E llieh au sen ,
E co n o m ist, O ffice of th e S ecretary, at
(2 0 2 ) 4 5 2 - 2 5 0 4 ; for th e hearing
im p aired o n ly , D orothea T h om p son ,
T e le co m m u n ica tio n s D evice for the
Deaf, at (2 0 2 ) 4 5 2 - 3 5 4 4 .
SU P P L E M EN T A R Y INFORMATION: ( 1 )

The Truth in Savings Act
(act) (12 U.S.C. 4301 et seq.) requires
depository institutions to provide
disclosures to consumers about their
deposit accounts, including an APY on
interest-bearing accounts, i The law also
contains rules about advertising deposit
accounts, including accounts at
depository institutions offered to
consumers by deposit brokers. The
Board is authorized in section 269(a)(3)
of the act to make adjustments and
exceptions that, in its judgment, are
necessary or proper to carry out the
purposes of the act or to facilitate
compliance with the requirements of the
act. The act is implemented by the
Board’s Regulation DD (12 CFR part
230), which became effective June 21,
1993. (See final rule published on
September 21,1992 (5 7 FR 43337),
correction notice published on October
5 , 1992 (5 7 FR 46480), and amendments
published on March 19,1993 (58 FR
15077).)
B a c k g ro u n d .

T im e V a lu e o f M o n e y in th e A n n u a l
P ercentage Y ie ld
In im p lem en tin g th e T ru th in Savings
A c t, th e B o ard sought to fulfill th e
C o n g ress’ in ten t to p rov id e co n su m ers
w ith a u niform to o l that w ou ld enable
th em to m ak e in form ed d ecision s
regard ing d ep o sit a cco u n ts. In th e
ru lem ak in g th at resu lted in th e final
ru le o f S ep tem b er 1 9 9 2 , th e B o ard w as
gu id ed by several gen eral p rin cip les,
su ch a s establishing- sim p le ru les that
m in im ize th e p ossib ility o f errors and
c o m p lia n ce c o s ts an d providin g
in stitu tio n s w ith flexib ility to p rom ote a
variety o f p ro d u ct c h o ice s for
co n su m e rs. T h is in clu d ed designing a
* For convenience, ihe terms "APY” and APYE”
[for cnnuei rerointage >?eid earned) are used
throughout the supplementary information.




s im p le , e a s y -to -u s e fo rm u la fo r
c a lc u la tin g th e A P Y .
It h a s s in c e c o m e to th e B o a r d ’s
a tte n tio n th a t for s o m e a c c o u n t s th e
re g u la tio n ’s c u r r e n t fo rm u la for
c a lc u la tin g th e A P Y p r o d u c e s re s u lts
th a t s e e m a n o m a lo u s . T h e fo rm u la
a s s u m e s th a t in te re s t p a id r e m a in s on
d e p o s it u n til m a tu rity . B e c a u s e th e
fo rm u la s o m e tim e s ig n o r e s th e
o p p o rtu n ity to r e in v e s t in te re s t
r e c e iv e d , it d o e s n o t a lw a y s re f le c t th e
tim e v a lu e o f m o n e y . W h e n c o n s u m e r s
r e c e iv e in te re s t p a y m e n ts o v e r se v e ra l
y e a rs p r io r to m a tu r ity , th e fo rm u la
p r o d u c e s re s u lts th a t s e e m e s p e c ia lly
a n o m a lo u s , w ith a n A P Y th a t is lo w e r
th a n th e c o n t r a c t in te r e s t ra te .z
Y e t o th e r a c c o u n t s in w h i c h in te re st
is p a id b e fo re m a tu r ity , th e c u r r e n t
fo rm u la e ff e c tiv e ly re f le c ts th e tim e
v a lu e o f m o n e y in th e r e s u ltin g A P Y .
T h is s itu a tio n o c c u r s w h e n in te re s t is
c o m p o u n d e d o n a n a c c o u n t th a t g iv e s
c o n s u m e r s th e option to ta k e in te re st
p a y m e n ts a t in te rv a ls w h e n th e in te re st
w o u ld o th e rw is e c o m p o u n d . In th is
c i r c u m s t a n c e , th e A P Y d is c lo s e d is th e
s a m e fo r c o n s u m e r s w h o r e c e iv e in te re st
p a y m e n ts a s fo r th o s e w h o c h o o s e to
le a v e in te re s t in th e a c c o u n t fo r
c o m p o u n d in g , a
T o r e d u c e th e s e a p p a r e n t a n o m a lie s
a n d a c c o u n t fo r th e tim in g o f in te re s t
p a y m e n ts , th e B o a rd is s o lic itin g
c o m m e n t o n p ro p o s e d a m e n d m e n ts to
R e g u la tio n DD th a t p r o v id e a sin g le
a lte r n a tiv e fo rm u la fo r c a l c u l a t i n g th e
A P Y . T h e B o a rd b e lie v e s th e a c t ’s
p u r p o s e s — p ro v id in g a u n if o rm m e th o d
o f c o m p u tin g th e A P Y fo r e ff e c tiv e
c o m p a r is o n s h o p p in g — a r e b e tte r
fu lfille d b y a fo rm u la th a t c a p tu r e s b o th
to ta l in te re s t p a id a n d th e tim in g o f
in te re s t p a y m e n ts . B e c a u s e th e
c a lc u la tio n w o u ld b e m o r e p r e c is e , th e
B o a rd b e lie v e s it m a y b e p re fe ra b le to
th e c u r r e n t c o m p u ta tio n m e th o d . T h e
B o a rd is c o n c e r n e d th a t a m e n d in g th e
r e g u la tio n a t th is tim e a n d in th e
m a n n e r p ro p o s e d m ig h t h a v e a
a F"' axair'ple, assume a consumer deposits
$1,000 in a two-year noncompounding CD with a
6.0G% interest rata. If the institution pays out
interest annually, the consumer receive* $60 each
yaar. Because the formula reflects only the total
amount of indirect paid regardless of when it is paid
out '$120 at the end of t'.vo years, in this example),
the APY for tr,e two-year CD s 5 83%—*vhicfc is
lower than the 6.00% interest rata.
j To illustrate, assume a consumer deposits
$1,000 in a one-year CD with a 6 00% interest rate
that compounds quartsiiy. The consumer receives
S61 TO in interest a! maturity, and the institution
discloses a 8,14% APY. If the consumer receives
interest ch.sx.ks eoch quarter, the current APY is still
6.14%, because the regulation requires the
institution to assume that interest continues to
compound in tha account until maturity. In this
case the consumer receives only $60 in four $15
quarterly payments.

641 9 1

s ig n if ic a n t im p a c t o n th e c o m p lia n c e
p ro g ra m s m a n y in s titu tio n s h a v e
a lre a d y p u t in p la c e to c o m p ly w ith
R e g u la tio n DD. If th e b u rd e n o f
c o m p l i a n c e c o s ts is s h o w n to e x c e e d th e
b e n e fits c o n s u m e r s m a y d e riv e from th e
p ro p o s e d c a lc u la tio n , th e B e a r d w ill
c o n s i d e r w h e th e r a n a r r o w e r s o lu tio n ,
o r m a k in g n o c h a n g e to th e re g u la tio n ,
m a y u ltim a te ly b e m o re s a tis fa c to r y .

(2) P ro p o se d re g u la to ry re visio n s.
A p p ro a c h A : P ro p o s a l o f A d d itio n a l
F o rm u la
T h e B o a r d is p ro p o s in g for c o m m e n t
a n e w fo rm u la fo r th e A P Y th a t r e f le c ts
n o t o n ly th e e ffe ct o f c o m p o u n d in g , b u t
a ls o th e v a lu e o f r e c e iv in g in te re st
d u r in g th e te rm o f th e a c c o u n t .
In s titu tio n s o ffe rin g a c c o u n t s th a t p a y
in te re s t o n ly a t m a tu r ity (re g a rd le s s o f
w h e th e r o r w h e n c o m p o u n d in g o c c u r s )
a n d a c c o u n t s th a t c o m p o u n d d a ily
(o th e r th a n a c c o u n t s in v o lv in g s te p p e d ra te c a lc u la tio n s ) w o u ld n o t b e a ffe cte d
b y th is p ro p o s a l.
T h e p r o p o s a l b a s e s th e c a lc u la tio n o f
th e A P Y o n a c o m m o n ly -u s e d
c o m p u ta tio n to o l, a s ta n d a rd in te rn a l
ra te o f r e tu r n fo rm u la . T h is fo rm u la ,
la b e le d “ F o r m u la fo r a ll a c c o u n t s ,”
a p p e a r s in A p p e n d ix A , s e c tio n 1 .A.,
b e lo w . A lth o u g h th e p ro p o s e d fo rm u la
m a y b e u s e d b y in s titu tio n s to c a lc u la te
A P Y s fo r a ll a c c o u n t s , a t t h e ir o p tio n ,
u se o f th e fo rm u la w o u ld b e re q u ire d fo r
i n s titu tio n s o fferin g a c c o u n t s in v o lv in g
s te p p e d -r a te c a l c u l a t i o n s th a t m a k e
in te r e s t p a y m e n ts p r io r to m a tu r ity . It
a ls o w o u ld b e re q u ire d fo r a c c o u n t s th a t
p a y in te r e s t p r io r to m a tu r ity i f in te re s t
is n o t c o m p o u n d e d d a ily . If a n y c h a n g e
to th e c u r r e n t rule, is a d o p te d , th e B o a rd
c o n te m p la te s p ro v id in g in s titu tio n s
w ith a s u f fic ie n t p e rio d — s u c h a s n in e
m o n th s fro m th e d a te th e a m e n d m e n ts
b e c o m e fin a l— to im p le m e n t a n y
n e c e s s a r y c h a n g e s in o p e ra tin g s y s te m s
b e fo re c o m p l i a n c e w ith th e
a m e n d m e n ts b e c o m e m a n d a to ry .
T h e B o a rd b e lie v e s th a t th e n e w
fo rm u la w o u ld p r o v id e m o r e h e lp fu l
in fo r m a tio n to c o n s u m e r s fo r m a k in g
in v e s tm e n t d e c is io n s in th e
m a r k e tp la c e , g iv e n th a t d e p o s ito ry
in s titu tio n s o ften o ffe r c o n s u m e r s a
c h o i c e re g a rd in g in te re s t p a y m e n ts on
d e p o s it a c c o u n t s . A fte r c o n s id e rin g
m a n y a lte r n a tiv e s , th e B o a r d b e lie v e s a n
in te r n a l ra te o f re tu rn fo rm u la is th e b e st
m e th o d fo r c o m p u tin g th a A P Y in a w a y
th a t fu lfills th e C o n g re s s ’s in te n t to
p r o v id e c o n s u m e r s w ith a u n ifo rm to o !
to c o m p a r e a c c o u n ts .
T h e B o a rd is a w a re th a t re q u irin g th e
u se o f th e n e w fo rm u la w o u ld a ffe ct
e x is tin g fo rm a t, a c c o u n t d is c lo s u r e , a n d
a d v e r tis in g r e q u ir e m e n ts , a m o n g o th e rs
T h e B o a r d is c o n c e r n e d th a t a m e n d in g

61192

Federal Register / Vol. 58, No. 232 / Monday, December 6, 1993 / Proposed Rules

the regulation n ot long after its effective
date co u ld im p ose ad ditional b urdens
on d ep o sito ry in stitu tion s, and asks for
general co m m en t on the potential cost.
To help w eigh th e burden against the
p oten tial ad van tage to con su m ers, the
Board also solicits com m en t on w h eth er
co m m en ters b elieve the new calcu lation
w ould im p rove or red u ce the value of
the A F Y in co n su m er com p arison s of
investm ent c h o ice s in the m ark etp lace.4
The Board is also aw are of differences
in d isclosed retu rn s am ong variou s
investm ent p rod u cts. F o r exam p le, a
tw o-y ear T reasu ry nGte sold at par value
that bears a co u p o n rate of 6 .0 0 % and
m akes sem i-an n u al in terest p aym en ts
states a 6 .0 0 % yield . In con trast, a tw oyear CD w ith a n o n co m p ou n d in g 6 .0 0 %
interest rate an d sem i-ann u al interest
p aym en ts w ou ld d isclose a 5 .8 3 % A P Y
under the cu rren t form ula and a 6 .0 9 %
A PY u nd er the proposal. W ould these
kinds of d ifferences cau se significant
con fu sion for con su m ers?

A pproach B: N oncom pounding MultiYear CDs
In co n sid erin g w h eth er to propose a
new A P Y form ula, the Board d iscu ssed
taking a n arro w er ap p roach that w ou ld
ad dress only th e calcu latio n of A P Y s for
n on co m p ou n d in g CDs that have
m atu rities lon ger th an one year and that
p rovide in terest p aym en ts at least
an n u ally. T h e cu rren t form ula p rod u ces
a A P Y th at is low er than th e co n tract
interest rate even if in stitu tion s m ake
in terest p aym en ts at least annually.
U n d er the altern ative ap p roach
con sid ered by the B oard , th e A P Y for a
m u lti-year CD th at does not com p ou n d
but pays in terest at least an n u ally w ould
alw ays be th e sam e as the co n tract
interest ra te .5 T h is ap proach
co rresp o n d s to th e w ay in w h ich the
return is calcu lated on Treasury
secu rities an d sim ilar in vestm ents w hen
they are p u rch ased at par v alu ed
The Board recogn izes that this
n arro w er ap p ro ach w ould p rod u ce less
p recise ca lcu la tio n s than w ould th e use
of an in tern al rate of retu rn form ula
b ecau se the resu ltin g A P Y w ould not *58
■*For example, under the current formula, a
5.83% APY is disclosed for a two-year CD with a
noncompounding 6.0G% interest rate and sem i­
annual interest checks. Under the proposal, a 6.09%
APY would be disclosed (reflecting the value of the
serni annual interest checks).
5 An example is a two-year CD that pays a 6.00%
interest rate and does not compound interest but
pays out interest checks at the end of each year.
Under the current regulation, institutions would
disclose a 5.83% APY. but under Approach B
institutions would disclose a 6.00% APY whether
checks are sent annually or more frequently.
8Treasury notes and bonds provide semi-annual
interest payments, and the investment yield reflects
the interest coupon rat8 and whether the securities
are sold at a discount or a premium.




reflect d ifferen ces in p eriod ic interest
d istrib u tion s. F o r exam p le, it w ou ld not
differentiate b etw een an nu al or m onth ly
interest p aym en ts. Com pared to the
cu rren t ru le, h ow w ould a n arro w er
ap p roach im p ro ve or red u ce the value of
the A P Y in com p arin g different
acco u n ts? If co m m en ters believe a
narrow er a p p ro ach is preferable, how
w ould the c o m p lia n ce co sts to
im p lem en t th e n arro w er rule com p are to
the co sts to im p lem en t the form ula
proposed in A p p ro ach A?

A pproach C: Leaving the Regulation
U nchanged
In light of c o n ce rn s about requiring
ch an ges soon after the reg u latio n ’s
effective date and q uestions about
w h ether th e co sts o f the proposed
ch an ges co u ld outw eigh the benefits to
co n su m ers, th e Board solicits com m en ts
on w'hether the regulation should be left
unchan ged .
(3) Section-by-section analysis.
A sectio n -b y -sectio n d escrip tion of
p roposed am en d m en ts follows.

Section 230.2—Definitions
Paragraph (c)— A nnual Percentage
Yield
The act and regulation define the A P Y
as the total am o u n t of in terest that
w ould be receiv ed based on the in terest
rate and th e frequency o f com p ou n d in g
for a 36 5 -d a y year. T h e p rop osed
am en d m en t b road en s th e definition to
treat the d istrib u tion of in terest to th e
co n su m er as th e equivalent of
com p ou n d in g. F o r exam p le, if an
institution p ays a 6 .0 0 % interest rate on
an a cco u n t, th e sam e A P Y w ould result
w h eth er an in stitu tion com p ou n d s
m onth ly or send s out m onth ly interest
paym ents.
S ection 2 6 9 of the act au thorizes the
Board to m ake adjustm ents and
excep tio n s th at are n ecessary or p rop er
to carry out th e p urposes of the act. T h e
Board so licits co m m en ts on w h eth er an
excep tio n should be m ade to the
definition of A P Y , and w h ether the
purpose of th e regulation — enabling
con su m ers to m ake inform ed d ecision s
about deposit a cco u n ts— is better m et if
the A P Y cap tu res th e tim e value of
interest receiv ed as airin terest paym en t
during the term o f the acco u n t, as w ell
as by com p ou n d in g.

Paragraph (i)— Crediting
The act and regulation require
in stitu tion s to d isclose crediting
p olicies for interest-bearing acco u n ts.
The Board p rop oses to define the term
“cred itin g ” to in clu d e the paym ent of
interest to a co n su m er, eith er by
paym ent to th e a cco u n t or by ch eck or

tran sfer to an oth er acco u n t. The Board
b elieves th at using a single term to
d escrib e th e variou s m ethods by w h ich
in terest is paid to a co n su m er w ill
sim plify th e regulation (p articu larly
A p p en d ix A , dealing w ith the A PY
form ula). A uniform definition also
w ould ease co m p lian ce when
in stitu tion s d isclose their interest
cred itin g frequencies. (See paragraph
4(b )(2).) T h e B oard believes that the
term “ co m p o u n d in g ”— w hen interest
begins to earn interest in an a cco u n t—
has a uniform m eaning in the in du stry;
th us, a regulatory definition is not
p rop osed . T h e Board requests com m en t
on th e p rop osed definition of
“ cre d itin g ” and on w h ether the term
“ co m p o u n d in g ” should be defined.

Section 230.4—Account Disclosures
Paragraph (b)(6)—Features o f Time
A ccounts
Paragraph (b)(6)(iii)— W ithdrawal of
Interest Prior to M aturity
T h e regulation con tain s a d isclosu re
for in stitu tion s offering tim e acco u n ts
th at co m p o u n d in terest and perm it a
co n su m er to w ith d raw accru ed interest
during the a cco u n t term . Institutions
m u st cu rre n tly d isclose that the A P Y
assu m es in terest rem ains on deposit
until m atu rity of the acco u n t and that
in terest w ith d raw als w ill red u ce the
earnings on th e acco u n t. The proposal
w ou ld d elete th e d isclosu re as
u n n ecessary sin ce, u n d er the proposed
am en d m en ts, th e A P Y w ould reflect the
receip t o f in terest at sp ecific tim e
intervals.

Section 230.5— Subsequent Disclosures
Paragraph (a)— Change in Terms
Paragraph (a)(2)— No N otice Required
Paragraph (a)(2)(iv)— Changes to the
Frequency o f Interest Paym ents Initiated
b y the Consum er
T h e act and regulation require
in stitu tion s to give 3 0 -d a y s ’ ad van ce
n o tice of an y ch an ge in the acco u n t
d isclo su res if the chan ge might red u ce
th e A P Y or ad versely affect the
con su m er.

The proposal would create an
exception for changes to the interestpayment intervals that are initiated by
the consumer. For example, if a
consumer receives monthly interest
payments on an account and prior to
maturity requests the institution to start
making payments semi-annually, no
advance notice would be required.
However, if an institution that permits
interest payments monthly eliminates
that payment option during the term of
an account, advance notice would be

Federal Register / Vol. 58, No. 232 / Monday, December 6, 1993 / Proposed Rules
re q u ire d for c o n s u m e r s w h o a re
re c e iv in g m o n th ly p a y m e n ts .
S e c tio n 2 6 9 o f th e a c t a u th o riz e s th e
B o a rd to m a k e a d ju s tm e n ts a n d
e x c e p tio n s th a t a re n e c e s s a r y o r p ro p e r
to c a r r y o u t th e p u r p o s e s o f th e a c t. T h e
B o a rd s o lic its c o m m e n t o n w h e th e r th e
p ro p o s e d e x c e p tio n to th e c h a n g e -in te rm s n o tic e re q u ire m e n ts sh o u ld be
m ade.
A p p e n d ix A to P a r t 2 3 0 — A n n u a l
P e r c e n ta g e Y ie ld C a lc u la tio n

P a rt 1. A n n u a l P ercentage Y ie ld f o r
A c c o u n t D isclo su re s a n d A d v e rtis in g
P urposes
A . G en eral P u le s
A p p e n d ix A e s ta b lis h e s th e ru le s th a t
in s titu tio n s u se to c a l c u l a t e th e A P Y .
C u rr e n tly , P a rt I c o n ta in s th e
c a lc u la tio n s fo r a c c o u n t d is c lo s u r e s a n d
a d v e rtis e m e n ts . T w o A P Y fo rm u la s a re
p ro v id e d : A “ g e n e r a l” fo rm u la th a t c a n
b e u s e d fo r a ll ty p e s o f a c c o u n ts a n d a
“ s i m p le ” fo rm u la th a t c a n b e u se d fo r
a c c o u n t s th a t h a v e a m a tu r ity o f o n e
y e a r o r th a t h a v e an u n s ta te d m a tu rity .
A s s u m p tio n s a n d o th e r g e n e ra l ru le s
re g a rd in g th e fo rm u la s a re a d d r e s s e d in
s e c tio n I.A .
A s d is c u s s e d a b o v e , th e B o a rd
p ro p o s e s to a d d a fo rm u la th a t tak es
in to a c c o u n t th e tim e v a lu e o f m o n e y
b a s e d o n w h e n th e c o n s u m e r r e c e iv e s
in te re s t. T h e g e n e ra l ru le s a p p lic a b le to
a ll A P Y c a lc u la tio n s fo r a c c o u n t
d is c lo s u r e s a n d a d v e rtis e m e n ts w o u ld
a p p e a r in P a rt I.A . A n e w s e c tio n I.A .1
w o u ld e x p la in th e p ro p o s e d n e w
fo rm u la a n d a c c o m p a n y in g ru le s fo r
c a l c u l a t i o n s , a n d s e c tio n I .A .2 . w o u ld
e x p la in w h e n in s titu tio n s m a y u se th e
e x is tin g fo rm u la .
T h e p ro p o s a l w o u ld c h a n g e s o m e
a s s u m p tio n s . F o r e x a m p le , th e c u r re n t
fo rm u la g e n e ra lly re q u ire s in s titu tio n s
to a s s u m e th a t all in te re s t a n d p rin c ip a l
re m a in o n d e p o s it a n d th a t n o
tr a n s a c tio n s (d e p o s its o r w ith d ra w a ls )
o c c u r d u rin g th e te rm o f th e a c c o u n t.
B e c a u s e th e p ro p o s e d n e w fo rm u la
fa c to r s in th e tim in g o f in te re s t
p a y m e n ts , in s titu tio n s w o u ld c o n tin u e
to a s s u m e th a t n o d e p o s its o c c u r d u rin g
th e te rm o f th e a c c o u n t , b u t w o u ld
c o n s i d e r w h e n in te re s t w ith d r a w a ls a re
m ade.
T h e B o a rd p ro p o s e s to d e le te fo o tn o te
3 a s u n n e c e s s a r y , g iv e n th a t th e
p ro p o s e d fo rm u la s p e c if ic a lly fa c to r s in
w h e n in te re s t p a y m e n ts a re m a d e o n an
a c c o u n t.
T h e B o a rd p ro p o s e s to in c o r p o r a te
tw o a s s u m p tio n s to p r o v id e g r e a te r
f le x ib ility a n d e a s e c o m p lia n c e w ith th e
n e w fo rm u la . F i r s t, in s titu tio n s c o u ld
c a l c u l a t e th e A P Y b y a s s u m in g an in itia l
d e p o s it a m o u n t o f $ 1 ,0 0 0 . O r,




in s titu tio n s c o u ld fa c to r in th e a c tu a l
d o lla r a m o u n t o f a d e p o s it, a lth o u g h th e
B o a rd n o te s th a t th e e ffe cts o f r o u n d in g
in te re s t p a id o n a v e r y sm a ll d e p o s it
a m o u n t s u c h a s $ 2 5 c a n p ro d u c e a
skew ed A P Y .
S e c o n d , if in te re s t is p a id o u t
m o n th ly , q u a r te rly , o r s e m i-a n n u a lly ,
in s titu tio n s c o u ld b a se th e n u m b e r o f
d a y s e ith e r o n th e a c tu a l n u m b e r o f d a y s
fo r th o s e in te r v a ls o r o n a n a s s u m e d
n u m b e r o f d a y s ( 3 0 d a y s fo r m o n th ly
d is trib u tio n s , 9 1 d a y s fo r q u a rte rly
d istrib u tio n s , a n d 1 8 2 d a y s fo r
s e m ia n n u a l d is trib u tio n s ). A p p e n d ix A
c u r r e n tly p e rm its in s titu tio n s to u s e a
s im ila r a s s u m p tio n fo r d e te rm in in g th e
n u m b e r o f d a y s in th e te rm o f a “ th re e m o n t h ” o r “ s i x -m o n t h ” tim e a c c o u n t ,
fo r e x a m p le . (O f c o u r s e , i f th e
in stitu tio n c h o o s e s to u s e 9 1 d a y s a s th e
n u m b e r o f d a y s fo r e a c h q u a r te r, it m u s t
a ls o u se 9 1 d a y s to c o m p u te in te re s t fo r
th o s e q u a rte rs . A n d s e e § 2 3 0 .7 , w h ic h
re q u ire s in s titu tio n s to p a y in te re s t o n
th e fu ll p rin c ip a l b a la n c e in th e a c c o u n t
e a c h d a y .) T o illu s tra te , a s s u m e th e
in s titu tio n s e n d s in te re s t p a y m e n ts at
th e e n d o f e a c h c a le n d a r m o n th to
c o n s u m e r s w ith s ix -m o n th C D s. If th e
in s titu tio n b a s e s its A P Y c a l c u l a t i o n o n
an a s s u m e d te rm o f 1 8 3 d a y s , th e
in s titu tio n c o u ld c a l c u l a t e th e e ffe ct o f
m o n th ly in te re s t p a y m e n ts b y u s in g th e
a c tu a l d a y s in e a c h c a le n d a r m o n th o r
a s s u m in g fiv e 3 0 - d a y in te r v a ls a n d o n e
3 3 - d a y in te rv a l.) T h e B o a rd s o lic its
c o m m e n t o n th e p ro p o s e d a s s u m p tio n s .

1. F o rm u la f o r A l l A c c o u n ts
T h e n e w fo rm u la , w h ic h is a s ta n d a rd
in te rn a l ra te o f r e tu rn fo rm u la , c o u ld b e
u s e d fo r a ll a c c o u n ts . It w o u ld h a v e to
b e u se d fo r a c c o u n t s th a t: (1 ) in v o lv e
s te p p e d -r a te c a lc u la tio n s (re g a rd le s s o f
th e c o m p o u n d in g fre q u e n cy ) th a t p a y
in te re s t p rio r to th e m a tu r ity o f th e
a c c o u n t , a n d (2 ) p a y in te re s t p r io r to th e
m a tu r ity o f th e a c c o u n t if in te re s t is n o t
c o m p o u n d e d d a ily . F o r e x a m p le ,
in s titu tio n s w o u ld u s e th e fo rm u la to
c a l c u l a t e th e A P Y fo r a o n e -y e a r tim e
a c c o u n t th a t c o m p o u n d s s e m i-a n n u a lly
a n d fo r w h ic h th e c o n s u m e r r e c e iv e s
in te re s t p a y m e n ts d u rin g th e y e a r.
In s titu tio n s a ls o w o u ld u s e th e fo rm u la
fo r s te p p e d -r a te a c c o u n t s , w ith d a ily
c o m p o u n d in g , w h e re th e c o n s u m e r
r e c e iv e s in te re s t p a y m e n ts d u rin g th e
te rm o f th e a c c o u n t.
T h e p ro p o s e d fo rm u la a n d th e
e x is tin g fo rm u la p r o d u c e th e s a m e
r e s u lt fo r tw o c o m m o n ly o ffe re d
a c c o u n t s (a n d , th u s , in s titu tio n s c o u ld
u se e ith e r fo rm u la to c a l c u l a t e th e A P Y ):
(1 ) a c c o u n t s w h e re in te re s t is p a id o n ly
in a s in g le p a y m e n t a t m a tu r ity
(w h e th e r o r n o t in te re s t is
c o m p o u n d e d ), a n d (2 ) a c c o u n t s n o t

64193

re q u irin g s te p p e d -r a te c a lc u la tio n s th a t
c o m p o u n d in te re st d a ily . F o r
t r a n s a c tio n a c c o u n ts s u c h a s N O W
a c c o u n t s a n d m o n e y m a rk e t d e p o s it
a c c o u n t s (M M D A s), in s titu tio n s c o u ld
c o n t i n u e to u se th e e x is tin g fo rm u la
u n le s s th e y d o n o t c o m p o u n d d a ily or
u n le s s th e y re q u ire s te p p e d -r a te
c a l c u l a t i o n s , in w h ic h c a s e th e y w o u ld
d i s c l o s e an A P Y b a se d on th e n e w
fo rm u la .
T h e A P Y is d e te rm in e d d ir e c tly from
th e p r o p o s e d fo rm u la . F o r a n in te rn a l
ra te o f r e tu rn p ro g ra m th a t is s ta n d a rd
fo r m o s t c a lc u la to r s a n d so ftw a re ,
c a l c u l a t i o n s w o u ld c o n s id e r th e a m o u n t
a n d d a y s at w h ic h p a y m e n ts a re m a d e
in r e la tio n to th e a m o u n t a n d d a y o f th e
d e p o s it. U sin g s ta n d a rd p ro g ra m s , th e
c a l c u l a t i o n w ill r e s u lt in a d a ily y ie ld ,
w h ic h is a n n u a liz e d to p r o d u c e th e
A P Y .* T o e a s e c o m p lia n c e a n d
c a l c u l a t i o n s w ith s ta n d a rd p ro g ra m s fo r
in te rn a l ra te s o f re tu rn , th e p ro p o s e d
e x a m p l e s in c lu d e fig u re s s u c h a s th e
d a ily p e r io d ic ra te a n d d a ily y ie ld . T h e
B o a r d s o lic its c o m m e n t o n th e p ro p o s e d
fo rm u la a n d p ro p o s e d e x a m p le s , a n d
w h e th e r a d d itio n a l e x a m p le s s h o u ld b e
g iv e n .

2. F o rm u la f o r C e rta in A c c o u n ts
P r o p o s e d s e c tio n I .A .2 . c o n ta in s th e
fo rm u la s c u r r e n tly in A p p e n d ix A .
I n s titu tio n s c o u ld c o n tin u e to u s e th e m
fo r a c c o u n t s w ith a s in g le in te r e s t
p a y m e n t m a d e at m a tu r ity (w h e th e r o r
n o t c o m p o u n d in g o c c u r s p r io r to
m a tu r ity ). T h e s e fo rm u la s m a y a ls o b e
u s e d fo r a c c o u n ts th a t c o m p o u n d d a ily
a n d p a y in te re st p r io r to m a tu r ity —
e x c e p t fo r a c c o u n ts in v o lv in g s te p p e d r a te c a lc u la tio n s . W h e n th e s e fo rm u la s
a r e u s e d fo r a c c o u n ts th a t c o m p o u n d
d a ily , th e tim e v a lu e o f m o n e y is
re f le c te d b y th e a s s u m p tio n th a t in te re s t
r e m a in s in th e a c c o u n t, e v e n th o u g h
c o n s u m e r s m a y c h o o s e to r e c e iv e
in te r e s t p a y m e n ts d u rin g th e te rm o f th e
a c c o u n t (as E x a m p le 2 illu s tr a te s ).
In s titu tio n s o fferin g s te p p e d -r a te
a c c o u n t s (o r v a r ia b le -r a te a c c o u n t s w ith
a n i n tr o d u c to r y p re m iu m o r d is c o u n t
ra te ) th a t c o m p o u n d d a ily (o r o n
a n o th e r fre q u e n cy ) a n d p a y in te re s t
p r i o r to th e m a tu rity o f th e a c c o u n t
w o u ld b e re q u ire d to u s e th e p ro p o s e d
fo rm u la ra th e r th a n th e e x is tin g
fo rm u la . O th e rw is e , th e A P Y w o u ld
re f le c t th e a s s u m p tio n th a t in te re s t
e a r n e d at th e in itia l ra te r e m a in s in th e
a c c o u n t a n d e a rn s in te re s t a t th e ra te
p a id in s u c c e e d in g p e rio d s .
^Annual percentage yield=(daily yield/lOO+lpes
-

1

.

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Federal Register / Vol. 58, No. 232 / Monday, December 6, 1993 / Proposed Rules

B. S tepped-R ate A c c o u n ts (D iffe re n t
Rates A p p ly in S ucce ed ing P eriod s)
T his paragraph p rovides tw o
exam p les for calcu latin g the A P Y for
a cco u n ts that have tw o or m ore interest
rates that take effect in su cceed in g
periods and are known w hen the
acco u n t is opened (step p ed -rate
acco u n ts). M inor am en d m en ts to the
text, w ithout sub stan tive ch an ge, are
proposed. A lso, an ad ditional exam p le
is proposed to illustrate the use of the
new form ula.
C. V a ria b le -R a te A c c o u n ts
A p p en d ix A cu rren tly p rov id es that
the A P Y for a variable rate a cco u n t with
an in trod u cto ry p rem iu m (or d iscou nt)
m ust be calcu lated like a stepp ed-rate
acco u n t, and p rovides an ex a m p le using
the cu rren t “ sim p le” form ula. The
Board proposes to m odify th e exam p le
in Part I.C. to illustrate th e use of the
proposed new form ula.
P a it II. A n n u a l P ercentage Y ie ld E a rn e d
f o r P e rio d ic S tatem ents
Institutions that send p eriod ic
statem ents for interest-bearing acco u n ts
m ust d isclose inform ation, in clu d in g
the annual percentage yield earned
(A PY E ). T h e A P Y E is tied to the interest
earned and th e a cco u n t b alan ce for the
period reflected on the statem en t.
A p p en d ix A , P art II, sets forth tw o
form ulas for calcu latin g the A P Y E : a
general form ula and a form ula for
acco u n ts that com p ou n d interest and
send p eriod ic statem ents m ore
frequently than the com p ou n d in g
period.
U nder the proposal, a savings acco u n t
that com p ou n d s quarterly but p erm its
m onthly interest p aym en ts w ould
d isclose an A P Y reflecting th e value of
receiving interest m onth ly rath er than
quarterly. F o r exam p le, an institution
offering an MMDA w ith a 6 .0 0 %
interest rate w ould d isclose a 6 .1 7 %
A PY to con su m ers w h o ch o se to receive
m onthly interest p aym en ts. H ow ever, if
p eriod ic statem ents are sent quarterly,
the A P Y E w ould be low er than th e
d isclosed A P Y (in this e xam p le, 6 .1 4 % ,
assum ing an initial d eposit of $ 1 ,0 0 0
and no activ ity in the a cco u n t during
the 9 1 -d a y quarter).
The B oard recognizes that the A PY E
m ay vary from the A P Y d isclosed in
ad vertisem en ts and in acco u n t-o p en in g
d isclosu res, d epending on th e activ ity
in an a cco u n t during a statem en t cy cle.
This is the case regardless o f w h eth er
p eriod ic statem ents are sent at th e sam e
or a different frequency as interest
distributions or co m p o u n d in g periods.
The B oard believes the p rop osed
ch an ges to th e calcu latio n of th e A PY do




not require a corresp on d in g am endm ent
to the rules regarding the calcu latio n of
the A PY E . H ow ever, the Board solicits
com m ent on the potential differences
between th e A PY that m ay be d isclosed
under the proposal and the A P Y E , and
w hether con su m ers are likely to be
confused by th ose differences.
A pp en dix B— M odel C lau ses and
S am p le F o rm s

6 .1 4 % (quarterly interest paym ents) or
6 .1 7 % (m onth ly interest paym ents)
u nder the p roposed form ula. In stating
an A P Y that w ill vary depending on a
co n su m e r’s ch o ice of interest paym ents,
any of several ap p roach es cou ld be
taken. An institution could:
• State an y cu rren tly available A PY.
• State an y cu rren tly available A PY.
along w ith any com p ou n din g or
cred itin g p eriod , such as. ‘‘An annual
p ercentage yield of 6 .1 7 % assu m es you
receive m onth ly interest p ay m en ts.”
• S ta te th e lo w e st and highest A PY s

1. B - l M o d e l Clauses. C lau se (b)(i)
provides m odel language th at m ay be
used to d isclose the frequency of an
in stitu tion 's com p ou n d in g and crediting
for a g iv en m a tu rity .
p ractices. T h e proposal ad ds a new
• S tate all A P Y s for the acco u n t.
sen ten ce providing m odel language to
T h e Board solicits com m ent on w hich
use w hen interest is cred ited by check
ap p roach best serves con su m ers who are
p aym ents o r transfer to an oth er acco u n t.
com p arison shopping.
In acco rd w ith the p rop osed d eletion of
S ectio n 2 3 0 .4 (a )— D elivery o f A ccou n t
paragraph 4(b )(6)(iii), the B oard also
D isclosu res
proposes to d elete clau se (h )(iii), and to
P a ra g ra p h 4 (a )(2 )(ii)— Requests
redesignate clau se (h)(iv) as (h)(iii).
2. B -7 S a m p le F o rm . Given the
T he Board solicits com m en t on the
proposed d eletion o f paragraph
ap p ro ach es suggested for giving oral
4(b )(6)(iii) and m odel clau se B—1 (h)(iii),
resp on ses to requests for inform ation
the proposal w ould delete th e last tw o
(d iscu ssed in regard to paragraph 3(e)),
sen ten ces in th e First paragraph of the
as th ey w ould apply to responding to a
sam ple form.
request for w ritten acco u n t disclosures.
3. B -7 a S a m p le F orm . T he proposed
S ectio n 2 3 0 .4 (b )(l)(i)— A nnual
new sam p le form illustrates a d isclosure
P ercen tag e Y ield and In terest R ate
for a CD that offers co n su m ers th e
options to com p ou n d in terest o r to
T h e Board b elieves the regulation
receive in terest on a m ore frequent
w ould req u ire in stitu tion s offering a
basis. The form d iscloses w h ich interest
variety of op tion s for com p ou n din g or
paym ent op tion w as ch o sen , and an
interest p aym en ts to d isclose the A PY
A PY reflecting that ch o ice.
reflecting the specific in terest paym ent
(4)
P rop ose d a d d itio n a l gu id a n c e . The
or co m p o u n d in g option chosen by the
proposed regulatory am en d m en ts
co n su m er, b ecau se d isclosu res m ust
associated w ith a new A PY form ula
reflect the term s of th e legal obligation
raise oth er in terp retive issues. T h e
(see § 2 3 0 .3 (b )). Indicating in som e
Board so licits co m m en ts on th e issues
m an n er w h ich of several yields
addressed below .
prep rin ted on a rate sheet ap plies to the
co n su m e r’s a cco u n t w ould be an
Section 2 3 0 .3 (a )— F o rm
accep tab le w ay of com p lyin g. (S ee
The Board believes that institu tion s
§ 2 3 0 .3 (a ), w h ich p rovides flexibility in
must in d icate in som e m an n er w h ich
designing d isclosu res.)
options and yield s ap p ly to th e term s
chosen by the con su m er. T h e regulation
S ectio n 2 3 0 .4 (b )(2 )— C om pounding and
provides in stitu tion s w ith great
C reditin g
flexibility in designing th eir d isclosu res,
P a ra g ra p h fb)(2)(i)— Freq u en cy
as long as the inform ation is presented
T h e re g u la tio n re q u ire s in stitu tio n s to
in a form at that allow s co n su m ers to
d is c lo s e th e fre q u e n cy w ith w h ich
readily u nd erstand the term s of their
in te re s t is c o m p o u n d e d a n d c r e d ite d .
own acco u n ts (see § 2 3 0 .3 (a )), as
T h is s ta n d a rd w o u ld re q u ire in stitu tio n s
illustrated in p rop osed B - 7 a Sam ple
F o rm .

Section 2 3 0 .3 (e )— O ral R esp o n se to
Inquiries
The regulation p rovides that
institutions m u st state the A P Y w hen
responding to oral inquiries about rates.
For exam p le, on a on e-year CD that pays
an interest rate of 6 .0 0 % , co m p o u n d s
sem i-ann u ally, and p erm its in terest to
be w ithd raw n quarterly or m o n th ly, the
con su m er cou ld receiv e an A P Y of
6 .0 9 % (sem i-ann u al com p ou n d in g), or

a ls o to s p e c if y th e c re d itin g fre q u e n cy
for in te re s t p a y m e n ts se n t d ir e c tly to th e
c o n s u m e r o r to a n o th e r a c c o u n t,
w h e th e r b y c h e c k o r o th e r m e a n s , as
w e ll a s w h e n in te re st is c re d ite d to th e
a c c o u n t.
T h e B o a rd b e lie v e s th a t just as th e
d is c lo s u r e o f th e c o m p o u n d in g
fre q u e n cy p e rm its c o n s u m e r s to
c o r r e la te a h ig h e r A P Y w ith m o re
freq u en t c o m p o u n d in g p e rio d s , th e
d is c lo s u r e o f an in te re st p a y m e n t
fre q u e n cy s c h e d u le fo r an a c c o u n t c o u ld

Federal Register / Vol. 58, No. 232 / Monday, December 6, 1993 / Proposed Rules
assist con su m ers in und erstand in g why
A P Y s m ay vary. So, if a m u lti-year tim e
acco u n t does not com p ou n d interest but
pays interest an nu ally, the proposal
w ould require the institution to state
that interest is cred ited an nu ally. The
Board solicits com m en t on the proposed
d isclosu re and on w h eth er stating the
frequency of cred itin g by interest
paym ents or transfers to other acco u n ts
is likely to help co n su m ers com p are and
understand d ifferences in the d isclosed
A PY s.

Section 230.5(b)—Notice Before
Maturity for Time Accounts Longer
Than One Month That Renew
Automatically
A n n u a l P ercentage Y ie ld
The regulation requires institutions to
p rovide d isclosu res, in clu din g the A P Y ,
prior to m aturity of au tom atically
renew ing tim e acco u n ts. If the new
interest rate and A P Y are known at the
tim e the n otice is sent, the Board
believes institu tion s m ust state the
interest rate and A P Y that corresp on d to
the sp ecific com p ou n d in g and interest
paym ent options ap p licab le to the
acco u n t at the tim e the n otice is sent.
If the A P Y and interest rate are not
know n, institu tion s m ust d isclose when
that inform ation w ill be available and
provide a telep hone n um ber for
con su m ers. T he Board believes that oral
resp on ses giving sp ecific A P Y s w ould
be im portant to co n su m ers in com p arin g
acco u n ts. H ow ever, the Board
recognizes the potential cost of
co m p lian ce for in stitu tion s that m ay not
have online a c ce s s to com p u terized
acco u n t inform ation about w hat options
apply to a p articu lar acco u n t. T h e Board
solicits com m en t on the ap p roach es for
d isclosu re u nd er paragraphs 3(e) and
4(a)(2)(ii) as they w ould apply to a
renew ing rollover CD.
C o m p o u n d in g a n d C re d itin g F re q u e n cy
The regulation requires in stitu tion s to
d isclose the sp ecific com p ou n d in g and
cred itin g frequency ap p licab le to
renew ing CDs. (See § 2 3 0 .3 (b ), w h ich
requires that d isclo su res reflect the legal
obligation of the a cco u n t agreem ent.)
The Board so licits co m m en t on the
ap p roach es for d isclo su re u nder
paragraphs 3(e) and 4(a)(2)(ii) as they
w ould ap ply to th e com p ou n d in g and
cred itin g frequencies o f a renew ing
ro llover CD. T h e B oard solicits
com m en t on th e p oten tial co m p lian ce
co sts for tracking and d isclosin g the
c o n su m e r’s cu rren t ch o ice for
com p ou n d in g and cred itin g frequencies,
p articu larly for a c co u n ts that require
acco u n t d isclosu res to be given, such as




CDs with m aturities longer than one
year.

Section 230.8(b)—Permissible Rates
The Board solicits com m en t on
w hether an ad vertisem en t for an
acco u n t offering con su m ers a variety of
interest paym ent options m ay state any
available A PY . F or exam p le, assu m e an
institution ad vertises a on e-year CD that
pays a 6 .0 0 % interest rate, com p ou n d s
sem i-ann u ally, and perm its interest to
be w ithdraw n quarterly or m onthly.
May the institution ad vertise only one
A PY such as 6 .1 7 % (m onthly interest
paym ents), or m ust th e ad vertisem en t
d isclose all three rates: 6 .0 9 % (sem i­
annual com p ou n din g), 6 .1 4 % (quarterly
interest paym ents), and 6 .1 7 % (m onthly
interest p aym ents)?
The Board solicits com m en t on this
issue, and altern atives su ch as the
desirability of requiring the low est A P Y
also to be stated if a higher A PY is
quoted. How w ould in stitu tion s’
advertising be affected by these
alternative requirem ents for ad vertising?
W ould institutions red u ce the frequency
of advertising yield s, for exam p le? H ow
w ould these altern atives affect the valu e
of the inform ation that con su m ers
receive from ad vertising? T h e Board
also solicits com m en t on w h ether an
advertisem ent should be con sid ered
m isleading if it does not also state th e
interest paym ent frequency used in
obtaining the ad vertised yield.
(5) F o rm o f c o m m e n t letters.
Com m ent letters should refer to D ocket
No. R -0 8 1 2 , and, w hen possible, should
use a standard typ eface w ith a typ e size
of 10 or 12 ch aracters per in ch . T h is w ill
enable the Board to co n v ert the text into
m ach ine-read ab le form through
electro n ic scan nin g, and w ill facilitate
autom ated retrieval of com m en ts for
review . C om m ents m ay also be
subm itted on 3V2 inch or 5 V* inch
com p u ter diskettes in any IBMcom p atib le DOS-based form at, if
acco m p an ied by an original d ocum ent
in p aper form.
(6) R e g u la to ry f le x ib ilit y a n a ly s is a n d
P a p e rw o rk R e d u c tio n A c t. T he B o a rd ’s
Office of the S ecretary has prepared an
e co n o m ic im pact statem ent on the
proposed revisions to Regulation DD.
The an alysis exp resses reservation s
about w h ether the p roposed am en d m en t
w ould significantly im prove the value
of the A PY d isclosu re to con su m ers and
con cern about the desirability of
am ending the regulation regarding the
calcu lation of the A P Y at this tim e. A
cop y of the an alysis m ay be obtained
from P u b licatio n s S ervices, Board of
G overnors of the Fed eral Reserve
System , W ashin gton, D.C. 2 0 5 5 1 , at
(2 0 2 ) 4 5 2 - 3 2 4 5 .

64195

The Board solicits inform ation
regarding the likely co sts for com p lyin g
w ith the proposed chan ges to the A PY
form ula, or a n arrow er ap proach that
involves chan ges to th e d isclosure of the
A P Y for n on com p ou nd in g m u lti-year
CDs. In p articu lar, the Board solicits
com m en ts on the follow ing:
• W h a t p ro p o rtio n o f e x is tin g
a c c o u n ts w o u ld req u ire th e n e w fo rm u la
fo r c o m p u tin g A P Y s ? W o u ld
in s titu tio n s a d o p t th e n e w fo rm u la o n ly
w h e n re q u ire d , o r w o u ld th e y u se th e
n e w fo rm u la for all a c c o u n ts w h e th e r
re q u ire d o r n o t?

• W hat chan ges w ould institutions
have to m ake to im plem ent the new
form ula and w hat w ould it cost
institu tion s to make these chan ges?
• W h a t c h a n g e s in th e n u m b e r of
d ifferen t a c c o u n t te rm s a n d ty p e s o f
a c c o u n ts o ffered w o u ld re s u lt if th e new
fo rm u la w e re a d o p te d ? F o r e x a m p le ,
w o u ld in s titu tio n s offer c o n s u m e r s
few er c h o ic e s ? W o u ld in s titu tio n s
c h a n g e from c o m p o u n d in g to
d istrib u tin g th e in te re st p a id on
a c c o u n ts w ith o u t c o m p o u n d in g ?

In acco rd a n ce w ith section 3 5 0 7 of
the Paperw ork R ed uction A ct of 1 9 8 0
(44 U .S.C . 3 5 ; 5 C FR 1 3 2 0 .1 3 ), the
p roposed revisions w ill be review ed by
the Board u nder the authority delegated
to the Board by the O ffice of
M anagem ent and Budget after
con sid eration of com m en ts received
d uring the public com m en t period.

List of Subjects in 12 CFR Part 230
A dvertising, Banks, Banking,
C onsu m er p rotection , D eposit acco u n ts,
Interest, Interest rates, Tru th in savings.
C e r t a i n c o n v e n t i o n s h a v e b e e n used
to highlight the proposed revisions to
the regulation. New language is show n
inside bold-faced arrow s, w hile
language that w ould be deleted is set off
w ith bold-faced brackets.
F o r th e reasons set forth in the
pream ble, the Board p roposes to am end
12 C FR part 2 3 0 as follows:

PART 230—TRUTH IN SAVINGS
(REGULATION DD)
1. T h e authority citatio n for part 2 3 0
w ou ld con tin u e to read as follow s:
A u th o rity : 12 U .S.C . 4 3 0 1 et seq.

2. P art 2 3 0 .2 w ould be am ended by
revising paragraph (c), by redesignating
p aragraph s (i) through (v) as paragraphs
(j) through (w) and by adding a new
p aragraph (i) to read as follows:

§230.2 Definitions.
♦
*
*
*

*

(c)
A n n u a l percen ta ge y ie ld m ean s a
p ercentage rate reflecting the total
am oun t of interest paid on an acco u n t,

Federal Register / Vol. 58, No. 232 / Monday, December 6, 1993 / Proposed Rules

64196

based on the interest rate and th e
frequency of ^in terest p aym en ts a n d !
com p ou n din g, for a 3 6 5 -d a y period and
ca lcu lated acco rd in g to th e ru les in
A p p en d ix A o f this part.
*
*
*
*
*
!( i ) C re d itin g m ean s th e p aym en t of
interest to the acco u n t or to th e
co n su m er from the acco u n t by ch eck or
transfer to an oth er a c c o u n t.$
*
*
*
*
*
3. S ectio n 2 3 0 .4 w ou ld be am en d ed
by rem ovin g paragraph (b )(6)(iii) and
redesignating paragraph (b )(6)(iv) as
p aragraph (b)(6)(iii).
4. S ectio n 2 3 0 .5 w ou ld be am en d ed
by ad din g a new paragraph (a)(2)(iv) to
read as follows:

§ 230.5

Subsequent disclosures.

(a) * * *
( 2) * * *

!(iv ) Changes to th e fre q u e n c y o f
in te re s t paym ents in itia te d by th e
co n s u m e r. Changes in itiated by the
co n su m er to the frequency of interest
p aym ents. 4

*

*

*

*

*

5. In P art 2 3 0 , A p p en d ix A w ou ld be
am en d ed by revising th e in tro d u cto ry
paragraph to A p p en d ix A; by rem oving
the in trod u cto ry p aragraph to P art I; and
by revisin g p aragraph A , th e exam p les
in p aragraph B, and th e final p aragraph
in paragraph C in Part I o f A p p e n d ix A,
to read as follows:
A p p e n d ix A to P a rt 2 3 0 — A n n u a l P e rc e n ta g e
Y ie ld C a lc u la tio n
T h e a n n u al p e rcen tag e yie ld m e a su re s th e
total a m o u n t o f in te re st paid on an a c co u n t
based o n th e in terest ra te , an d th e fre q u e n cy
of c o m p o u n d in g ],] !a n d in te re st
p a y m e n ts !.1 T h e a n n u al p e rce n ta g e y ield is
e x p re s se d as an a n n u a liz e d ra te , b a se d on a
3 6 5 -d a y year.z Part I o f th is a p p e n d ix
d iscu sse s the an n u al p e rce n ta g e y ield
c a lc u la tio n s for a c co u n t d isc lo su re s an d
a d v e rtise m e n ts, w h ile P art II d is c u s s e s
an n u al p ercen tag e y ield e a rn e d c a lc u la tio n s
for p e rio d ic statem en ts.

Part I. A nnual Percentage Yield fo r Account
Disclosures and Advertising Purposes

>A. General Rules!
In g e n e ra l, the a n n u a l p e rc e n ta g e y ie ld for
a c c o u n t d isclo su re s u n d e r § § 2 3 0 .4 an d 2 3 0 .5
o f th is p a rt and for ad v e rtisin g u n d e r § 2 3 0 .8
of th is p art is an a n n u a liz e d ra te th a t reflects
the re la tio n sh ip b etw een th e a m o u n t o f

in terest th at w o u ld be earn ed by the
c o n s u m e r for the term o f th e a c c o u n t !(a n d
th e freq u en cy of in terest p a y m e n ts )! an d the
a m o u n t o f p rin cip al u sed to c a lc u la te th at
in terest. [S p e c ia l ru les a p p ly to a c c o u n ts
w ith tiered an d step p ed in terest ra te s . A .
General Buies ] T h e an n u al p erce n ta g e yield
sh all be c a lc u la te d by the f o r m u l a !s ! sh o w n
b elow . In stitu tion s shall c a lc u la te th e an n u al
p erce n tag e y ield based on the a c tu a l n u m b er
o f d ay s in th e term o f the a c co u n t. F o r
a c co u n ts w ith o u t a stated m a tu rity d ate (su ch
as a ty p ical savin gs o r tra n sa ctio n a c c o u n t),
th e c a lc u la tio n sh all be based o n an assu m ed
term o f 3 6 5 day s. [I n d eterm in in g th e to tal
in terest figure to be u sed in th e fo rm u la ,1
In stitu tio n s shall assu m e th at [a l l p rin cip a l
an d in terest rem ain on d ep o sit for th e e n tire
term an d th at no o th er tra n s a c tio n s (d e p o s its
or w ith d ra w a ls )] ! n o d e p o s its ! o c c u r du rin g
th e te r m .[ 3] F o r tim e a c co u n ts th at are
offered in m u ltip les o f m o n th s, in stitu tio n s
m ay b ase th e n u m b er o f d ay s e ith e r on the
a ctu a l n u m b er o f d ay s d u rin g th e a p p licab le
p erio d , o r th e nu m b er o f d ay s th at w o u ld
o c c u r for an y actu al seq u en ce o f th at m an y
c a le n d a r m on th s. If in stitu tio n s c h o o s e to use
th e latter ru le, th ey m u st u se th e sam e
n u m b er o f d ay s to c a lc u la te th e d o lla r
a m o u n t o f in terest earn ed on th e a c c o u n t th at
is u sed in th e an n u al p ercen tag e y ield
f o r m u l a 's ! [(w h e r e “ In terest” is d iv id ed by
“ P rin c ip a l” ) ] . ! i f in te re st is cre d ite d
m o n th ly , q u arterly o r se m i-a n n u a lly ,
in stitu tio n s m ay base th e n u m b er o f d ay s on
e ith e r th e a ctu a l n u m b er o f d ay s for th o se
in te rv als, o r the follo w in g a ssu m e d in terv als:
m o n th ly . 3 0 d ay s: q u arterly, 9 1 d a y s; an d
se m i-a n n u a lly , 1 8 2 d ay s. If in stitu tio n s
c h o o se to u se th e latter ru le, th ey m u s t use
th e sam e n u m b er o f d ay s to c a lc u la te th e
d o lla r am o u n t o f in terest e arn ed on th e
a c c o u n t th at is u sed for th e c re d itin g in terval.
In stitu tio n s m ay base th e d o llar a m o u n t o f a
d e p o sit on e ith e r th e actu al a m o u n t o f the
d e p o sit or an assu m ed d ep o sit o f $ 1 0 0 0 .

1. Formula fo r A ll Accounts
T h e follow in g form ula m ay be u s e d for all
a c co u n ts . It sh all be u sed for s te p p e d -ra te
a c c o u n ts (an d variab le-rate a c c o u n ts w ith an
in tro d u cto ry p rem iu m o r d isco u n t) w h ere
in terest is paid p rio r to the m a tu rity o f the
a c c o u n t. T h e form ula a lso sh all be u sed for
a c co u n ts w h ere in terest is p aid p rio r to th e
m a tu rity o f th e a c co u n t if in terest is not
c o m p o u n d e d daily. T h is form u la re fle c ts th e
sp e c ific freq u en cy o f in terest p a y m e n ts to th e
co n su m e r.
D eposit = First p a y m e n t/(l + A P Y /1 0 0 ) Day
o f d ep o sit to d ay o f first p a y m e n t/3 6 5
+ S u c ce e d in g p a y m e n t/(l +■ A P Y /1 0 0 ) D ay
o f d ep o sit to su c c e e d in g p a y m e n t/3 6 5

+ ...
1The annual percentage yield reflects only
interest and does not include the value of any
bonus (or other consideration worth $10 or iess)
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.




+ F in a l P a y m e n t/(1 + A P Y /1 0 0 ) D ay of
d ep o sit to d ay o f final p a y m e n t/3 6 5
" A P Y ” is the an n u al p ercen tag e y ield paid
on the d ep osit.
“ D ep o sit” is th e in itial d ep o sit.

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.!

“ F irst p a y m e n t” is the am o u n t o f the first
in te re st p ay m en t m ad e d u rin g th e term
o f th e a c co u n t.

“Succeeding payment” is the amount of
each succeeding interest payment,
excluding the first and final payments,
made during the term of the account.
“Final payment” is the amount of the final
payment including principal made at the
end of the account.
"D a y o f d ep o sit to day of first p a y m e n t” is
th e n u m b e r o f days b etw een th e day of
th e in itial dep osit and th e first pay m en t.

"Day of deposit to succeeding payment” is
the number of days between the day of
the initial deposit and each succeeding
payment.
“ Day o f d ep o sit to day of final p a y m e n t”
is the a ctu a l num ber o f d ay s in th e term
o f th e acco u n *
E x a m p le s
(1) F o r a $ 1 ,0 0 0 tw o-year CD (w ith a 6 .0 0 %
in terest rate an d a .0 1 6 4 4 % daily p erio d ic
rate, an d n o c o m p o u n d in g but sem i-an n u al
in terest p a y m e n ts ), an in stitu tio n m ak es tw o
m id y e a r in te re st p ay m en ts o f $ 2 9 .9 2 on day
1 8 2 o f e a c h y e a r (d ays 1 8 2 an d 5 4 7 ) an d tw o
in terest p a y m e n ts o f $ 3 0 .0 8 al each y e a r ’s
en d (d ay s 3 6 5 and 7 3 0 ). U sin g th e form ula
ab o ve, th e an n u al p ercen tag e yield is 6 .0 9 % :
1 .0 0 0 = 2 9 .9 2 /( 1 + A P Y / 1 0 0 ) 182' 123* 5 + 3 0 .0 8 /
(1 + A P Y / 1 0 0 ) 3*5'3* 5 + 2 9 .9 2 /(1
+ A P Y / 1 0 0 ) 5*7'3*5 + 1 0 3 0 .0 8 /(1 + A P Y /

100)73<V363
D aily y ie ld = .0 1 6 1 9 %
A P Y = 6 .0 9 %
(2) F o r a $ 1 ,0 0 0 o n e-y ear CD (w ith a 6 .0 0 %
in terest rate an d a .0 1 6 4 4 % d aily p e rio d ic
ra te , c o m p o u n d e d 6 e m i-an n u al!y ), an
in stitu tio n w h ic h allow s the c o n s u m e r to
e le c t q u a rte rly in terest p ay m en ts assu m es
th re e q u a rte rly in terest p ay m en ts o f $ 1 4 .9 6 at
9 1 -d a y in te rv a ls (d ays 9 1 , 1 8 2 an d 2 7 3 ), and
a final p a y m e n t o f $ 1 0 1 5 .1 2 on day 3 6 5 .
U sin g th e form u la ab o ve, the an n u al
p e rce n ta g e y ield for the q u arterly p ay m en t
o p tio n is 6 .1 4 % :
1 .0 0 0 = 1 4 .9 6 /(1 -f A P Y /1 0 0 )91'3*5 + 1 4 .9 6 /(1
+ A P Y / 1 0 0 ) 182-365
+ 1 4 .9 6 /(1 + A P Y /1 0 0 )273-3*5 + 1 0 1 5 .1 2 /(1

+ APY/100)3*5'3*5
D aily yield = .0 1 6 3 2 %
A P Y = 6 .1 4 %

2. Formula fo r Certain Accounts

The formula under this section I.A.2. m ay
be used for accounts that make a single
interest payment at maturity. The formula
may also be used for accounts that compound
daily regardless of when interest is credited,
with one exception. This formula may not be
used for stepped-rate accounts and variablerate accounts with an introductory premium
or discount that compound daily and pay
interest prior to maturity. When using the
formula, institutions shall determine the total
interest figure to be used in the formula by
assuming that all principal and interest
remain on deposit for the entire term and that
no other transactions (deposits or
withdrawals) occur during the term.! The
annual percentage yield is calculated by use

Federal Register / Vol. 58, No. 232 / Monday, December 6, 1993 / Proposed Rules
o f th e follo w in g I g e n e r a lJ fo rm u la (“ A P Y " is
used for c o n v e n ie n ce in th e fo rm u la s):
A P Y = 1 0 0 f ( l + (In te re st/P rin cip a l))< 365/Da>'‘
in l e n r i ) — 1 |
“ P r in c ip a l" is th e a m o u n t o f fu n d s
assu m e d to h av e been d e p o site d at the
b eginn ing o f th e a c co u n t.
“ In te re st” is th e to tal d o lla r a m o u n t of
in te re st e a rn e d on th e P rin cip a l for the
term o f th e a c co u n t.
“ D ays in te rm ” is th e a c tu a l n u m b er of
d ay s in th e te rm o f th e a c co u n t.
W h en the ‘‘d ay s in te rm ” is 3 6 5 (th at is.
w h e re th e sta te d m a tu rity is 3 6 5 days or
w h ere th e a c co u n t d o es not h a v e a stated
m a tu rity ), th e a n n u al p e rce n ta g e y ie ld ca n be
c a lc u la te d b y u se o f th e fo llo w in g sim p le
form u la: A P Y = 1 0 0 (In te re s t/P rin c ip a l)
E x a m p le s
(1) If an in stitu tio n pays [ $ 6 1 . 6 8 ] ! $ 6 1 . 8 3 !
in in te re st for a 3 6 5 -d a y y e a r on $ 1 ,0 0 0
d e p o site d in to a N O W a c c o u n t ♦ (w ith a
.0 0 % in te re st ra te a n d d aily
c o m p o u n d in g )!, u sin g th e (g e n e r a l] f o rm u L
a b o v e, th e a n n u al p e rc e n ta g e y ie ld is
[ 6 . 1 7 ] * 6 .1 8 ! % : A P Y = 1 0 0 [( 1 +
( [ 6 1 .6 8 ] ! 6 1 . 8 3 ! / l ,0 0 0 ) ) o « / j 6 5 ) - 1 ] A P Y =
[ 6 . 1 7 ] * 6 .1 8 ! % .
O r, u sin g th e sim p le form u la above (sin ce ,
as an a c c o u n t w ith o u t a sta te d te rm , th e term
is d e e m e d to be 3 6 5 d a y s):

6

A PY = 1 0 0 (6 1 .1 f 7 ] | 8 !/1 .0 0 0 )
APY = 6 .1 ( 7 J !8 !%
(2) If a n in stitu tio n [p a y s $ 3 0 .3 7 in in terest
o n ] l o f f e r s ! a $ 1 ,0 0 0 six -m o n th c e rtifica te o f
d e p o sit (w h ere th e six -m o n th p e rio d u sed by
the in stitu tio n c o n ta in s 1 8 2 d a y s * , qu arterly
in terest p a y m e n ts are se n t, a n d th e re is d aily
c o m p o u n d in g at a 6 .0 0 % in te re st r a t e !) ,
usin g th e [g e n e r a l] form ula ab o v e , the
an n u a l p e rce n ta g e yie ld is 6 .1 8 % :
A P Y = 1 0 0 [ ( 1 + (30.37/l,000))(36s/i82) - i J
A P Y = 6 .1 8 %

B. Stepped-Rate Accounts (Different Rates
A p p ly in S u c ce e d in g P e rio d s.)
*
*
*
*
*
E x a m p le s
(1) If a n in stitu tio n offers a $ 1 ,0 0 0 6-m o n th
c e rtifica te o f d e p o sit on w h ic h it p a y s a
5 .0 0 % in te re st ra te , c o m p o u n d e d d a ily , for
the first th re e m o n th s (w h ic h c o n ta in 91
d ay s), an d a 5 .5 0 % in te re st ra te ,
c o m p o u n d e d d a ily , for th e n e x t th re e m o n th s
(w h ich c o n ta in 9 2 d a y s), th e to tal in te re st
Ip a id in a sin g le p a y m e n t a t m a tu r ity ! for six
m o n th s is $ 2 6 .6 8 a n d u sin g th e (g e n e r a l]
form ula * in s e ctio n I .A .2 .! ab o v e , th e ann ual
p e rce n ta g e y ie ld is 5 .3 9 % :

! ( 3 ) f o r a $ 1 ,0 0 0 tw o -y e a r c e rtifica te o f
d e p o sit (w ith a n in te re st rate o f 6 .0 0 % an d
a d aily p e rio d ic r a te o f .0 1 6 4 4 % th e first
y e a r, an d an in terest rate o f 6 .5 0 % a n d a
d aily p e rio d ic ra te o f .0 1 7 8 1 % th e se co n d
y ear, no c o m p o u n d in g b u t se m i-a n n u a l
in terest p ay m en ts), an in stitu tio n m ak es tw o
p a y m e n ts d u rin g th e first y ear, a m id y e a r
in terest p ay m en t o f $ 2 9 .9 2 on d a y 1 8 2 an d
a yearen d in terest p ay m en t o f $ 3 0 .0 8 on day
3 6 5 , an d tw o p a y m e n ts d u rin g th e s e co n d
y ear, a m id y e a r in terest p ay m en t o f $ 3 2 .4 1 on
d ay 5 4 7 an d a final p ay m en t o f $ 1 0 3 2 .5 9 on
d ay 7 3 0 . U sin g th e form u la in se ctio n I .A .l.
a b o ve, th e an n u al p ercen tag e y ie ld is 6 .3 4 % :
1 ,0 0 0 = 2 9 .9 2 /( 1 + A P Y / 1 0 0 ) 1827365 + 3 0 .0 8 /(1 +
A P Y /1 0 0 ) 36* 365
+ 3 2 .4 1 /(1 + APY/100)M 7/3«5 + 1 0 3 2 .5 9 /(1
+ A P Y /1 0 0 )730365
D aily y ie ld = .0 1 6 8 4 %
A P Y = 6 .3 4 % !
C. V ariab le-R ate A c c o u n ts
*
*
*
*
*
F o r e x a m p le , [ i f ] * a s s u m e !a n in stitu tio n
offers an a c c o u n t o n w h ic h it p a y s Q u a r te r ly
in terest p ay m en ts a t ! a 7 .0 0 % in te re st rate
♦ and a .0 1 9 3 4 % d a ily p e rio d ic r a t e !,
c o m p o u n d e d d a ily , for th e first th re e m o n th s
(w h ic h , for e x a m p le , c o n ta in 9 1 d a y s), w h ile
the variab le in te re st ra te th at w o u ld h av e
been in effect w h en th e a c c o u n t w as o p en ed
w as 5 .0 0 % [ , th e to tal in te re st f o r] * w ith a
d aily p e rio d ic rate o f .0 1 3 7 8 % . F o r ! a 3 6 5 d ay y e a r [ f o r ] * o n ! a $ 1 ,0 0 0 d e p o s it [ i s
$ 5 6 . 5 2 ] * a n in stitu tio n w o u ld m a k e on e
q u arterly in terest p a y m e n t o n d a y 9 1 o f
$ 1 7 . 6 0 ! [(b a s e d o n 91 d ay s a t 7 . 0 0 % ] * , tw o
in terest p ay m en ts o f $ 1 2 .5 4 o n d ay s 1 8 2 and
2 7 3 , ! [fo llo w e d by 2 7 4 d ay s a t 5 % ) ] * an d a
final p ay m en t o f $ 1 0 1 2 .6 8 o n d a y 3 6 5 ! .
U sin g th e [ s im p l e ] form u la * in se ctio n
I . A . l . ! th e an n u al p ercen tag e y ield is
[ 5 .6 5 ] * 5 .6 6 !% :
[ A P Y = 1 0 0 ( 5 6 .5 2 /1 ,0 0 0 )
A P Y = 5 .6 5 % ]
♦ 1 ,0 0 0 = 1 7 .6 0 /(1 + A P Y /1 0 0 )9 ' ' 365 + 1 2 .5 4 /(1
+ A P Y /1 0 0 ) 182/365
+ 1 2 .5 4 /(1 + A P Y /1 0 0 )273/365 + 1 0 1 2 .6 8 /( 1
+ A P Y /1 0 0 ) 3657365
D aily y ie ld = .0 1 5 0 8 %
A P Y = 5 .6 6 % !
*

*

*

*

*

6. In P art 2 3 0 , A p p e n d ix B . se ctio n

B - l is
a m e n d e d by rem o v in g M od el C lau se B l(h )(iii) an d red esig n atin g M o d el C la u se B l(h )(iv ) as M o d el C lau se B - l ( h ) ( i i i ) , a n d by
a d d in g a s e n te n c e to th e en d o f M o d el C lau se
B - l ( b ) ( i ) to read as follow s:
A p p e n d ix B to P a r t 2 3 0 — M o d el C la u se s an d
S a m p le F o rm s
*
*
*
*
*

(2) If an in stitu tio n offers a $ 1 ,0 0 0 tw o -y e a r
c e rtifica te o f d e p o sit o n w h ic h it p a y s a
.0 0 % in te re st ra te , c o m p o u n d e d d aily , for
th e first y e a r, an d a 6 .5 0 % in te re st rate,
c o m p o u n d e d d aily , for th e n e x t y e a r, the
to tal in te re st !p a i d in a sin g le p a y m e n t at
m a tu r ity ! is $ 1 3 3 .1 3 a n d u s in g th e [g e n e r a l]
form u la * in s e c tio n I .A .2 .! a b o v e , th e annual
p e rce n ta g e y ie ld is 6 .4 5 % :
A P Y = 1 0 0 [ ( 1 + 1 3 3 . 1 3 / 1 ,000)(365C73o> _ i j

6

A P Y = 6 .4 5 %




ad d in g a n ew S am p le F o rm B - 7 a to read as
follo w s:
A p p e n d ix B to P a r t 2 3 0 — M o d el C la u se s an d
S a m p le F o rm s
*
*
*
*
*
B - 7 — S a m p le F o rm (C ertificate o f D eposit)

XYZ Savings Bank
1 Y e a r C ertificate o f D eposit

Rate Inform ation
T h e in terest rate for y o u r a c c o u n t is 5.20%
w ith an an n u a l p ercen tag e y ield o f 5.34%.
Y o u w ill be paid th is rate u n til th e m atu rity
d ate o f th e c ertificate. Y o u r ce rtifica te w ill
m a tu re o n September 30, 1993. [T h e an n u al
p e rc e n ta g e y ield assu m es in terest rem ain s o n
d e p o s it u n til m atu rity . A w ith d raw al w ill
re d u c e e a rn in g s .]
♦ B- 7 a — S am p le F o rm (C ertificate o f D eposit)
X Y Z S av in g s B ank

1Y e a r C ertificate o f D eposit
Rate Inform ation
T h e in terest rate for y o u r a c c o u n t is 5.00%
w ith an an n u a l p ercen tag e y ield o f 5.12%.
Y o u w ill be paid th is rate u n til th e m atu rity
d ate o f th e c ertificate. Y o u r c e rtific a te w ill
m a tu re o n September 30, 1994.
In terest for y o u r a c c o u n t w ill be:
C o m p o u n d e d an d c red ited to y o u r a c co u n t
_________ tw o tim es a year.

________ four times a year.
Paid to you
________ monthly
_________ four tim es a y e a r
_________ by c h e c k

________ to another account
Interest begins to accrue on the business
day you deposit any noncash item (for
example, checks).
M in im um Balance Requirements
Y o u m u s t d ep osit $ 1 ,0 0 0 to o p en th is
a c c o u n t.
Y o u m u s t m ain tain a m in im u m b a la n c e o f
$ 1 ,0 0 0 in y o u r a c co u n t ev ery d a y to ob tain
th e an n u a l p ercen tag e y ield listed ab o ve.

Balance Computation Method
W e u se th e daily b alan ce m e th o d to
c a lc u la te th e in terest on y o u r a c c o u n t. T h is
m e th o d ap p lies a daily p e rio d ic rate to the
p rin cip a l in th e a c co u n t e a c h day.

Transaction Lim itations
After the account is opened, you may not
make deposits into or withdrawals from the
account until the maturity date.
Early W ithdrawal Penalty

A P Y = 1 0 0 [( 1 + (2 6 .6 8 /l,0 0 0 ))O 6 5 /i8 3 ) - i ]
A P Y = 5 .3 9 %

64197

B - l — M od el C la u se s fo r A c c o u n t D isclo su re s
(a) * * *
(b) C o m p o u n d in g an d c re d itin g

(i) Frequency
*

*

If you withdraw any principal before the
maturity date, a penalty equal to three
months interest will be charged to your
accoun t

*

♦ or
In terest for y o u r a c c o u n t w ill be paid [b y
c h e c k /to a n o th e r a c c o u n t] [( tim e p e r i o d ) ] .!
*
*
*
*
*
7. In P art 2 3 0 , A p p e n d ix B is a m e n d e d b y
re m o v in g th e last tw o s e n te n c e s from th e first
p a rag rap h o f S am p le F o rm B - 7 an d by

pay-per-call Renewal P olicy
This account will be automatically
renewed at maturity. You have a grace period
of ten (10) calendar days after the maturity
date to withdraw the funds without being
charged a penalty-!
*

*

*

*

*

B o ard o f G overn ors o f th e F e d e ra l R eserve
S y ste m , N o vem b er 2 2 , 1 9 9 3 .
W illia m W . W iles,

Secretary o f the Board.