I've read the posts regarding minimum balance to obtain APY and am confused.(Reg DD-230.4(b)(3)(i)C)) In reading the posts, it appears that we need to disclose the minimum balance needed to earn interest, not the minimum balance to obtain the stated APY.

I'm hoping that examples will show why I'm confused. We require $10 to open a savings account but will pay interest on all balances .01 & up. We compound daily with an interest rate of 1.24% and we disclose APY of 1.25%.

I used the OCC APY checker and ran 3 scenarios with varying principal balances(using daily compounding & interest rate of 1.24%).

Scenario 1: Principal of 1,000.00 resulted in APY of 1.25%
Scenario 2: Principal of 10.00 resulted in APY of 1.20%
Scenario 3: Principal of 1.00 resulted in APY of 1.00%

So, do we disclose .01 to earn interest in our disclosures or do we disclose $1,000 as the minimum balance to earn the stated APY of 1.25%? (I realize the minimum to obtain the APY of 1.25% may be less than 1,000, but didn't want to perform all the calculations to determine the exact minimum balance.)

I appreciate all help to clear up my confusion.

I believe that you are only running into a decimal point limitation on the APY checker. On deposits with that low of an amount, if you don't carry your interest paid out enough decimal places you are going to end up with those types of results. The APY should be 1.25% no matter the amount of the deposit.

Thanks for the response. I have a follow-up question. In using the APY checker, I used 15 decimal places for both the "daily rate" and "daily interest".

I assumed the different APYs resulted from the differing principal balances. A lower principal balance generates less interest than a higher principal balance & therefore, affects the APY calculation. I understand that the rate & compounding frequency impact the APY. But doesn't the principal balance also affect the APY since it is a component of the APY calculation?

The only reason that the principal balance will affect your APY is rounding. Lower balances (and therefore lower amounts of calculated interest) will cause some weird APY results. You will see them, for example, in the APYE disclosures for two identical, no activity accounts, one with a $2 balance and the other with a $2000 balance (assuming they both earn the same Interest Rate).

Somewhere in the calculation, the APY Checker is rounding a result to a small number of decimals. I assume (there's that word again!) that the interest amount is where it happens.

Example, $2 at 1.25% interest rate for one year yields interest of $0.02 or $0.03 depending on how you round or truncate. $2000 at the same rate yields $25 even. Since the dollar amount of interest gets carried into the APY formula, a lot can depend on whether you use 2 cents or 3 cents. One will get an APY a lot smaller than the interest rate; the other will get one that's a lot larger.