Has anyone recently offered a CD product that allows the customer to have the option of using a one time rate bump? I've seen several older threads on this topic, but I'm looking for more recent insight.

We have never offered this before and are considering it, but we have some questions. How is it tracked when a customer does use the bump? Do you give the customer a coupon? Is the rate bump option disclosed on the Truth in Savings disclosure or is there a separate disclosure given? When a customer request a rate bump do you maintenance the existing CD and give out a new TIS disclosure or do you do a issue a brand new CD (seen where a bank does this on a previous thread)?

Any help would be appreciated!

It is a variable rate CD whose features are disclosed in the TISA disclosure. If the customer comes in and asks to bump the rate - you bump the rate and are done. You already disclosed it.

Is that true even if we don't know the new rate at the time of opening of the CD?

This is my thought process on this promotion. We are predicating CD rates to go up eventually and a customer who has this product would have to keep up with our rates. Once a rate has increased to their liking they can exercise their rate bump. I knew we would have to mark variable rate on the TIS disclosure; however, I though if the customer exercised their rate bump for a higher rate we would have to issue a new TIS with the new rate.

Basically, we can disclose on the TIS "The initial rate on your account is ______%, you may increase this rate one time during the term of your account if rates are to increase...." and be done with it?!?! No new paperwork will be done when they change their rate?

Thank you for your help!

That you will decide for you own internal process.

Couple more thoughts for you to consider and disclose: can you bump at anytime, or just at certain intervals? Also, what are they bumping to: if it is a two year CD do they bump to the current two year CD rate for the remainder of the term, or are they bumping to the rate closest remaining term, perhaps the one year or six month rate/term?

If you initially disclose a variable rate CD, you don't re-disclose when the rate changes under the agreement whether that is in the bank's control, it is tied to an index, or the customer can choose. They are all the same - a variable rate CD.

We have this product - given your example, they would bump to the current 2 year rate for the remainder of the current term. We do have a form they sign indicating they are exercising the bump option that is dated, provided to the ops department as maintenance instructions, and filed with the original CD. No other disclosures are provided.

We have this product and stated when a bump up could occur. In addition, say when two-year CD maturity date came into play that we would disclose at account opening that CD would roll into normal two -year CD at that current rate.

We are in the set up stage for a bump CD product. Does anyone have a sample of what the customer signs when requesting the bump that they would be willing to share with me?

Hey guys, can you help me out on a new CD we have never offered? Management wants to offer a CD that begins at a certain rate, then it increases when our local basketball team wins a game. As far as advertising, how do I do that regarding the APY? I guess I will state the initial rate and APY, state that it is variable, and then say it can increase .03% with each win. Then, would I have to say another APY? There's no way I will know how many wins they will have. I guess I can figure out how many games there are and multiply that times the incremental increase and say that the max APY would be a certain amount. . . I don't know. It seems like a lot of information to have to include in an advertisement so I don't want it to get too wordy. Any help would be greatly appreciated!

Assume they win every game. You have to weight the APY over time. Let's say they play 15 games and the starting rate is 1.00%. If the interest rate increase .03% for every win, that's .45% and the final interest rate will be 1.45%. However, the APY will NOT be that high. You'll need to calculate the APY with an initial rate of 1.00 then stepping up each week (or every time they play) by .03%. So after the season, the rate ends up at .45% but it stepped up slowly over the season.

Look at Appendix A, Example B in Reg DD for an example: https://www.ecfr.gov/cgi-bin/text-idx?SI....a&rgn=div9

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%

You don't disclose an APY at account opening based on "what ifs". Your APY will be based on the interest rate at account opening and the variable rate feature will be disclosed. If you tied the account to the Prime Rate - you don't disclose any additional APYs - you never will know if the rate will ever change. I don't see it as any different.

They could win the first game only, they could win the last game only, they could win 1,3, and 5. There are endless possibilities.

That's an option Randy, but you can disclose based on "What If". We have many banks that have done this for years. They tie it to the Husker Football team, a local high school team, etc. They say, "Assume XYZ Team wins every game. If so, your rate would be ___%".

That may be, but you can't put another interest rate in the ad without an APY. You cannot calculate an APY if future interest rates are dependent on unknown factors. I see no provisions for "what if" APY advertising. The best you can do is to describe the variable rate feature. No problem with saying, your interest rate will increase .15% on your CD every time that the Husker's win a basketball game in the 2017-18 season. But I don't see the ability to say - you could earn XX% interest rate at XX% APY if they win every game.

(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.

That would be like saying in an ad that, for example, your interest rate will be tied to 60% of the Prime Rate. If the Prima Rate goes to 20%, you will earn an interest rate of 12% with an APY of 12.68%.

The huskers winning every game and Prime going to 20% have about the same chances

First, your statement about the Huskers winning every game is sadly true.


That's not at all true. Prime going to 20% is not likely to happen. The Huskers winning a game (or possibly every game) is possible and happened several times in the 90's - when this was popular in Nebraska. Many banks did it and many still do it with local sports team. Appendix A shows how to report it.

I have a few banks that do a "Rainy Day CD" that increases the interest rate by .10% every month there is an inch of rain. We can't control the weather, but every regulator has blessed everyone of these I've seen. You simply assume the team winning or an inch of rain each month (whichever is your criteria) and give the best case scenario. It's not deceptive, if disclosed properly and completely permissible.

Oh my goodness! My mind is blown! I have to read this and let it soak in. Thanks so much for your replies! Please be on stand by because I might need you to read what I finally come up with.

Thanks!