Advertising a Stepped-Rate CD

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Question:

When advertising a stepped-rate CD, is a bank required to include all applicable simple interest rates along with the period each is effective (not more conspicuous than the APY)?For example, the bank offers a 60-month CD at 4.20% for the first 12 months, then 3.45% for 48 months, 3.65% APY. Can the Bank advertise the 4.20% for 12 months and the 3.65% APY without mention of the rate in effect for the remaining 48-months (3.45%)?

Answer:

From the Official Staff Commentary to Section 230.8(b), item #2:

"2. Stepped-rate accounts. An advertisement that states an interest rate for a stepped-rate account must state all the interest rates and the time period that each rate is in effect. "

Including the higher interest rate and not the lower one could also be interpreted as misleading, and that is clearly not acceptable.

Suggestion: You will, of course, include the APY in your ad. That will be a blended APY reflecting the two rates and periods. Since you don't have to include interest rates at all in an ad, leave them both out. But you will, of course, have to include these interest rates in account disclosures when they are given.

First published on BankersOnline.com 04/5/04