Didn't Reg DD at one time have a statement in there that interest had to be paid at least once within a 365 day period on consumer time accounts? I remembers years ago watching the OID report to make sure there weren't any consumers on it, but I can't find anything in Reg DD that states it anymore. Was I dreaming or was it amended at some point?

I don't recall this. In fact, I remember Reg DD allowing a 2 year (or longer) CD to not pay interest and the APY was less than the interest rate. Later, Reg DD was amended to say in this case, the bank could report the APY as being equal to the interest rate.

From Appendix A, Part I, section E of the instructions for calculating the APY:


This rule was inserted into the regulation to counter the fact that the standard APY calculation formula results in an APY of less than the contract rate for any non-compounding time account with a term of more than one year. So, for example (without checking my math), an 18 month CD that pays interest only at maturity and doesn't compound might have an interest rate of 5.00% but an APY of 4.89%.

If the bank requires that interest on such a CD be paid out at least once a year, the APY can be stated as equivalent to the interest rate (in our example, 5.00%).

So is the only reason we have to monitor OID time accounts is for IRS reporting purposes?

That's pretty much it. It's a very difficult thing to explain to customers so most banks don't want to deal with it.

We had a lot of fun with 1099-OID's a few years ago when we ran a 13 month CD special and one of our bankers kept setting them up to pay at maturity. The customers called about why they received a 1099 on iterest that wasn't paid yet and they caled again when the interest amount on the 1099-INT was different than what they expected when it finally did pay.