Promotional rate on a MMDA for six months will be X%, then it will go to something else based on the tiered-rate structure. What tools do you use to calculate the blended APY per Reg. DD Appendix? Does anyone have a spreadsheet?

The OCC has a free software download, APYWIN, that calculates APY according to Reg DD rules. I'd check that out first.

http://www.occ.gov/tools-forms/tools/consumer-protection/apywin-software.html

Thank you!

Marketing does not want to put the blended APY in the ad more conspicuously than the premium six-month APY. Needless to say, they want the higher APY in large font and the blended APY in the disclosures at the bottom of the ad.

Taking UDAP and Reg. DD into consideration, does anyone think that is ok to do??

No. The APY is the blended rate.

Don't you just love your Marketing people??

I always went through this and now I go through it with clients! When you do a short term rate, the APY is the blended rate...marketing hates it.

We're moving to blended APY's, so I'd like to clarify.

So, can we only show one APY when we are blending and there is a promo rate and a go to rate? They want to show the promo rate and then also show "as high as X%", which is the highest blended APY they could get...

I'd also add that our go to rate after the promo is dependent on the balance in the account. So, do we still treat this as stepped rate?

The APY rules require that you only show one APY. Look at Appendix A - part B (Stepped Rates): http://www.ecfr.gov/cgi-bin/text-idx?SID....a&rgn=div9


You're describing a Tiered rate account (dependent on the balance). You'll need to give a blended rate and APY for each tier. See Part D of Appendix A.

Thanks Dave.

So, as I'm looking at examples from other banks that our Marketing people have, how do other banks show the introductory interest rate and the go to APY? Since the promo is being stated as a rate, are they ok since they are only showing one blended APY as the "thereafter"?

Without looking at the other bank's ads, I don't know how to answer your question. Maybe the answer is "they do it wrong".

You have to ask "Why even show the intro rate?" It's not required. All that is required, is the APY (blended). You MAY state the rate, but it can't be more conspicuous, and it may lead to confusion.

I've looked at the Reg and I don't see one mention of "blended" rate. What am I missing?

Look at th appendix for calculating APY and you will find that the calculation requirements for into rates require that the calculation follow that same requirements as a step rate account. If I have a 6-month intro rate, I have to calculate my APY using the 6-months at the intro rate and 6 months at today’s current rate. This the APY is a blend of the two interest rates used in the calculation.

You haven't found the term "blended" because it isn't in there. That term, however, is the easiest way to describe either 1) the APY from a stepped-rate account or 2) the APY from "Tiering Method B."

The stepped-rate calculation is what Brian described. Tiering Method B is found in part D to Appendix A of Regulation DD and results in a blended APY when a bank has an account with multiple tiers, but pays interest on each tier only for the portion of the balance within each tier. (Most banks use Tiering Method A where one rate is applied to the entire balance.) The result of Tiering Method B is a blended rate of all applicable tiers that could apply on the account.

From Appendix A:
"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."

The best explanation Adam. Great thread!

Has anyone experienced an error in the OCC's APY calculator? When I try to calculate the APY for a stepped-rate product which compounds every 6 months, I get an error that says "11 Division by zero." I brought this to the OCC's attention last year, and they acknowledged the error, but the calculator has not been fixed. Does anyone have another tool I can use for stepped-rate products? Thanks!

Unlike APR, the APY formulas are pretty straight forward. Not sure why you could not build a fairly simple Excel spreadsheet to do it.

I'm building off this older post. Bank is working to offer a 6-month CD where the rate is 1.00% for the first 90 days and the rest of the term, the rate is .55%. I have used the new APY calculator to calculate the blended APY as .78% (although I have concerns if the calculator is working. Two of us put in the exact same info and it came up with three different answers. Anyone else have issues?)

Our struggle is with calculating & disclosing the forfeiture. App support has provided us with the calculation from FiServe (although that's clear as mud). Our current CD's provide for 91 days of interest forfeiture if the CD is less than one year old. For this new product, as it's presented now, interest for the first 90 days is 1.00% so for forfeiture, it will be 90 days @ 1.00% and one day at .55%? would it be easier to calculate and disclose if the CD earned interest of 1.00% for the first 91 days (vs. 90) so it aligns with our current forfeiture rate?

Any resource I can use to help test calculations and complete the TISA?

You don't provide compounding frequency in your question so I cannot try to reproduce your results. Assuming monthly compounding I came up with 0.78% APY using APYWIN.

As for assessing an early withdrawal penalty, what if I withdrawal during month 5 when my account is only earning 0.55%. Will the penalty still be calculated based on 90 days at 1.00%.

However your system is going to calculate the penalty, your disclosures should be very clear about how the penalty is calculated