[Federal Register: August 8, 1994]
FEDERAL RESERVE SYSTEM
12 CFR Part 230
[Regulation DD; Docket No. R-0824]
Truth in Savings
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule; interpretation.
SUMMARY: The Board is publishing its official staff commentary to
Regulation DD (Truth in Savings). The commentary applies and interprets
the requirements of Regulation DD and is a substitute for individual
staff interpretations. The commentary incorporates much of the guidance
provided when the regulation was adopted, and addresses additional
questions raised since that time.
DATES: This rule is effective August 3, 1994. Compliance is optional
until February 6, 1995.
FOR FURTHER INFORMATION CONTACT: Jane Ahrens, Senior Attorney, or Kyung
Cho or Kurt Schumacher, Staff Attorneys, Division of Consumer and
Community Affairs, Board of Governors of the Federal Reserve System, at
(202) 452-3667 or 452-2412; for the hearing impaired only, Dorothea
Thompson, Telecommunications Device for the Deaf, at (202) 452-3544.
The purpose of the Truth in Savings Act (12 U.S.C. 4301 et seq.) is
to assist consumers in comparing deposit accounts offered by depository
institutions. The act requires institutions to disclose fees, the
interest rate, the annual percentage yield (APY), and other account
terms whenever a consumer requests the information and before an
account is opened. Fees and other information also must be provided on
any periodic statement sent to the consumer. Rules are set forth for
deposit account advertisements and advance notices to account holders
of adverse changes in terms. The act restricts how institutions
determine the account balance on which interest is calculated. The act
is implemented by the Board's Regulation DD (12 CFR part 230), which
became effective on June 21, 1993. The regulation authorizes the
issuance of official staff interpretations of the regulation. (See
Appendix D to Regulation DD.)
On February 7, 1994, the Board published for comment a proposed
commentary to Regulation DD (59 FR 5536). The commentary is designed to
provide guidance to depository institutions in applying the regulation
to specific transactions and is a substitute for individual staff
interpretations. The Board received about 150 comments, mostly from
depository institutions and trade associations. Commenters generally
supported the proposal.
In large measure, the commentary incorporates supplementary
information accompanying prior rulemakings, and reflects the views
expressed therein without substantive change. (See final rule published
on September 21, 1992 (57 FR 43337), correction notice published on
October 9, 1992 (57 FR 46480), and amendments published on March 19,
1993 (58 FR 15077).) The commentary also addresses issues that have
arisen since the publication of the regulation and technical
suggestions or concerns raised by commenters.
To avoid unnecessary detail, the discussion accompanying the final
commentary does not individually mention technical amendments that
clarify the proposed text but make no substantive change in meaning.
Similarly, additions to the final commentary of information previously
published are not separately noted. For example, the supplementary
information accompanying the September 1992 rulemaking discussed
deposit accounts denominated in foreign currency and held by consumers
as an example of accounts covered by the regulation. Foreign currency
accounts were not mentioned in the proposal. Comment 230.2(a)-1 now
lists foreign currency accounts among the examples of covered accounts,
but the addition is not specifically mentioned in the supplementary
information accompanying paragraph 2(a). Additions such as this were
added in response to commenters' requests. Many comments have been
renumbered, pursuant to the Federal Register's new publication rules.
On May 11, 1994, the Board published a proposal to amend the
regulation's rules regarding crediting and compounding practices (59 FR
24378). The proposal also has the effect of producing an annual
percentage yield (APY) that reflects the time value of money. On July
11, 1994, the Board published a notice extending to September 6, 1994,
the comment period for the May proposal (59 FR 35271). At the same
time, the Board solicited comment on an alternative approach for
calculating the APY. The approach would allow institutions to disclose
an APY equal to the interest rate on time accounts with maturities
greater than one year and that do not compound interest but pay
interest at least annually. The Board has deferred adopting commentary
on provisions of the regulation affected by the proposal, pending final
action by the Board.
Comment 2(a)-1 provides examples of accounts subject to the
regulation. The Board proposed to narrow the regulation's coverage of
trust accounts to individual retirement accounts (IRAs) and simplified
employee pension (SEP) accounts, to minimize compliance burdens for
Many commenters supported the Board's general approach, but
questioned whether the regulation should exclude accounts held by
individuals pursuant to informal trust arrangements such as ``Totten''
or payable on death (POD) trusts. Commenters noted the purpose of a
Totten trust is to avoid probate proceedings to transfer funds
remaining in an account upon a depositor's death. Commenters also noted
the account's signature card is often the sole evidence of the trust
relationship. These commenters believed consumers opening Totten and
POD trust accounts should be afforded the act's protections. The Board
concurs, and the commentary reflects this approach.
Comment 2(b)-1 illustrates the scope of commercial messages
considered to be advertisements. The Board proposed that advertisements
would not include direct oral discussions conducted in person regarding
a specific account. Many commenters urged the Board to expand the
interpretation to include telephone conversations about specific
accounts. The Board has retained the provision as proposed. The Board
believes face-to-face discussions allow prospective customers to learn
easily and quickly about basic terms of the account (thus, fulfilling
the purpose of advertising disclosures). Also, at any time during a
face-to-face conversation, consumers may request and receive written
disclosures at that time. This is not the case for conversations by
telephone. Thus, the commentary clarifies that except for information
about an existing account, commercial messages delivered via telephone
or voice response machines are advertisements.
Comment 2(f)-3 has been added to clarify the rule excluding from
bonuses items of de minimis value ($10 or less). (See 26 CFR
Sec. 1.6049-5(a)(2) published by the Internal Revenue Service, which
discusses the fair market value of property received.) Commenters
expressed concern about potential violations for failing to disclose as
a bonus early in the year an individual item of de minimis value deemed
to be a bonus when aggregated with another de minimis item given in a
separate promotional program involving the same account later in the
year. The comment provides guidance about aggregating only the market
value of items offered for the same promotional program. An example
illustrating the rule has been included.
An example relating to a landlord-tenant relationship in comment
2(h)-2 has been deleted as unnecessary.
The Board proposed two factors to consider in determining whether
an account is held by an unincorporated nonbusiness association of
natural persons, and the Board solicited comments on whether those or
additional factors would be helpful. Based on the comments received and
further analysis, the Board has adopted only one factor in comment
(p) Passbook Savings Account
Comment 2(p)-1 clarifies that institutions may consider accounts as
``passbook savings'' even when direct deposits are made to the account
electronically. The comment tracks the requirements of Regulation E (12
CFR 205.9). But accounts that permit other electronic fund transfers--
and thus trigger Regulation E's requirement to send statements at least
quarterly--are not passbook savings accounts, and institutions must
comply with the periodic statement disclosures in Sec. 230.6 of this
part. Accounts that send statements are not passbook savings accounts
for purposes of Regulation DD, even if consumers are provided with a
booklet for their records.
The proposal included examples of territories and possessions
covered by the act. Commenters requested more examples. Upon further
consideration, the Board believes a list of all the territories
considered to be ``states'' is unnecessary. Thus, the comment has not
(u) Time Account
Comment 2(u)-1 has been added to clarify when club accounts must be
considered time accounts for purposes of the regulation. Although club
accounts typically have one feature of a time account (a maturity
date), club accounts are not time accounts unless they also require a
penalty of at least seven days' interest for a withdrawal of funds
during the first six days after the account is opened--subject to
exceptions permitted in Regulation D (as discussed in comment 2(u)-2).
(v) Variable-Rate Account
Comment 2(v)-1 clarifies that a certificate of deposit (CD)
permitting one or more rate adjustments prior to maturity at the
consumer's option is a variable-rate account. The Board believes it is
important for consumers to receive disclosures describing when their
interest rate and APY could change, such as any time limitations on
when the option may be exercised.
Section 230.3--General Disclosure Requirements
Comment 3(b)-1 provides guidance on the specificity required when
time periods are disclosed. For example, the Board believes slight
variations in compounding cycles are consistent with the notion of
``monthly'' cycles, which are often not based on an actual calendar
month. Many commenters generally supported the Board's approach, but
expressed concern about the proposal's limitation of 28-33 days to
describe a month. The Board has adopted a standard of roughly
equivalent intervals occurring during a calendar year. The Board
believes this standard is consistent with the act, provides
flexibility, and eases compliance.
(e) Oral Responses to Inquiries
Comment 3(e)-3 has been added in response to commenters' requests.
It clarifies that this paragraph does not apply to responses to
requests for rate information on an existing account.
(f) Rounding and Accuracy Rules for Rates and Yields
Proposed comment 3(f)(2)-2 (regarding accuracy requirements for
interest rate disclosures) was a restatement of the regulation and has
been deleted as unnecessary. A comment illustrating rounding
requirements for the APY has been added.
Section 230.4--Account Disclosures
(a) Delivery of Account Disclosures
(a)(1) Account Opening
Comment 4(a)(1)-1 provides examples of events that trigger the
delivery of new account disclosures. The final comment differs from the
proposal in several respects.
The proposed commentary discussed the effect of a consumer-
initiated change in the term for an automatically renewable time
account. In response to commenters' requests, the commentary clarifies
that new account disclosures are required when the consumer changes any
account term required to be disclosed (and not merely the duration of
the CD). The clarification provides consistency with Sec. 230.5(b)-5.
Commenters expressed concern about having to give new account
disclosures when funds are transferred from one account to another,
such as when funds in a money market deposit account (MMDA) are
transferred to a NOW account because the consumer exceeded transaction
limitations on the MMDA. Some requested clarification that disclosures
at the time of transfer are not required if disclosures (including
change-in-term notices, if appropriate) for both accounts had
previously been given. To minimize possible burdens the Board has
adopted that standard in the commentary.
The Board received many comments regarding the proposed guidance
for ``closed accounts.'' New account disclosures would have been
required if institutions deemed an account closed and then accepted a
deposit from the consumer. Commenters noted that consumers with
accounts meeting an institution's criteria for a closed account--such
as an account having a $0 balance--do not necessarily intend to close
the account. Commenters believed consumers would be confused if new
account disclosures were sent when a deposit is subsequently made.
Commenters also expressed concerns about the burden of monitoring
accounts to ensure compliance.
The statute allows institutions not to pay accrued but uncredited
interest when a consumer closes an account. (See 12 U.S.C. 4303(c)(9).)
Based on comments received and upon further analysis, the Board
believes that if an institution deems an account closed and treats
accrued but uncredited interest as forfeited by the consumer, the
institution must deem a new account to be opened when a deposit is
subsequently accepted. This approach provides flexibility for
institutions and consistent treatment for consumers regarding
Comment 4(a)(1)-2 clarifies that an institution acquiring accounts
through a merger or acquisition is not required to provide new account
disclosures. The new institution must comply with Sec. 230.5(a)(1) if
it chooses to change terms of the acquired account. Private
transactions are distinguishable, however, from acquisitions or mergers
involving the Resolution Trust Corporation (RTC) and the Federal
Deposit Insurance Corporation (FDIC). In a government-assisted
acquisition, the acquiring institution receives only the consumer's
funds on deposit. The deposit contract or other legal obligation--the
terms and conditions of the account such as fees--stays (and ultimately
terminates) with the failed institution. Thus, new account disclosures
must be provided if the consumer chooses to open an account with the
new institution. Also, if fees are imposed before the new account
relationship is established, the fee must be disclosed prior to
Comment (a)(2)(i)-1 clarifies that institutions are not required to
send disclosures for accounts no longer offered to the public.
Comment 4(a)(2)(ii)(A)-1 has been added to clarify that when
responding to a request for disclosures by giving rates ``accurate
within the most recent seven calendar days,'' institutions should
calculate the time period from the date the institution sends the
(b) Content of Account Disclosures
(b)(1)(ii) Variable rates
Comments 4(b)(1)(ii)(B)-1 and 4(b)(1)(ii)(C)-1, dealing with rate
changes within the institution's discretion, have been modified.
Commenters believed rates derived from formulas based on an
institution's cost of funds, for example, are not ``solely'' in the
institution's discretion. In response to commenters' requests, both
comments have been revised for clarity and consistency.
(b)(2)(ii) Effect of Closing an Account
Comment 4(b)(2)(ii)-1 is modified from the proposal to reflect that
state or other law may affect an institution's ability to include in
its contract specific consumer actions considered by the institution to
be a request to close the account.
The Board has provided additional guidance in comment 4(b)(4)-1 for
fees imposed for sending to consumers checks that otherwise would be
held by the institution. Comment 4(b)(4)-2 clarifies that photocopying
fees are incidental fees not required to be disclosed. An example in
comment 4(b)(4)-3 was deleted as unnecessary.
(b)(6) Features of Time Accounts
(b)(6)(ii) Early Withdrawal Penalties
Comment 4(b)(6)(ii)-4 has been added in response to commenters
requesting guidance for disclosing an early withdrawal penalty.
Section 230.5--Subsequent Disclosures
(a) Change in Terms
Comment 5(a)(1)-3 provides guidance on an institution's
responsibility to provide change-in-term notices when account
disclosures reflect a term that will change upon the occurrence of an
event. An example relating to student accounts has been deleted as
unnecessary, and an example about terms in effect for a limited time
has been added to comment 5(a)(1)-4 in response to commenters'
Paragraph (a)(2)(ii) Check Printing Fees
In response to comments received, comment 5(a)(2)(ii)-1 has been
expanded to exclude increases in fees for printing deposit and
withdrawal slips from change-in-term notice requirements, although the
Board believes that separate charges for deposit or withdrawal slips,
which are typically provided along with checks, are seldom imposed.
Many commenters stated that, like check printing fees, fees for
printing deposit and withdrawal slips are not within the institution's
control, since the consumer determines the quantity ordered.
(b) Notice Before Maturity for Time Accounts Longer than One Month that
Comment 5(b)-2 provides guidance for disclosing the date when
consumers can ascertain applicable rates for a renewing CD. The
proposed comment required institutions to indicate when the rate will
be available if the date falls on a nonbusiness day. Based on comments
received and upon further analysis, the comment has been modified to
delete the requirement.
Section 230.6--Periodic Statement Disclosures
(a) General Rule
Comment 6(a)-1 clarifies that if zero interest is earned during the
period, institutions may disclose $0 for interest earned (and the
annual percentage yield earned) or omit the disclosure, at their
(a)(2) Amount of Interest
Comment 6(a)(2)-2 clarifies that institutions may use a variety of
terms to disclose interest earned, and that the regulation does not
mandate use of the examples.
Section 230.7--Payment of Interest
(a)(1) Permissible Methods
Comment 7(a)(1)-1 has been expanded to reflect the act's
legislative history, which cites the ``low balance'' method as an
example of a prohibited interest calculation method.
Proposed comment 7(a)(1)-6 addressed ``dormant'' accounts, and the
Board solicited comment on whether an institution should be permitted
to withhold the payment of interest for dormant accounts. Proposed
comment 7(b)-4 raised a similar issue for dormant accounts. Many
comments were received. Some commenters believed institutions should be
permitted to withhold the payment of interest for dormant accounts, if
authorized by state or other law and the deposit contract. Other
commenters noted that what constitutes a ``dormant'' account varies
widely among the states and institutions. These commenters expressed
concern about the impact of the rule if any period of inactivity--
however brief--could transform an account to dormant status. Still
others raised concerns whether the act, which requires that interest be
paid on the full amount of principal in the account each day, permitted
such an interpretation. (12 U.S.C. 4306(a).) Based on the comments
received and further analysis, the Board believes that account
inactivity does not affect an institution's duty to pay interest. (See
comment 7(c)-3, which provides that institutions must accrue interest
on funds until the funds are withdrawn from the account.) The Board
believes this position--reflected in comment 7(a)(1)-6--is consistent
with the purposes of the act and the rule that interest must be
calculated for funds in accounts meeting minimum balance requirements
for as long as funds remain in the account.
(a)(2) Determination of Minimum Balance to Earn Interest
Comment 7(a)(2)-6 clarifies limitations on minimum balance
requirements to earn interest for club accounts--such as ``holiday'' or
``vacation'' club. The rule does not apply to a club account's minimum
balance requirements for earning bonuses.
(b) Compounding and Crediting Policies
Comment 7(b)-3 has been revised to clarify that the circumstances
under which an institution may deem an account closed, and whether
accrued but uncredited interest may be deemed forfeited, is subject to
state or other law, if any (and to any limitations therein).
Comment 7(b)-4, dealing with the forfeiture of accrued but
uncredited interest for dormant accounts, has been withdrawn for the
reasons discussed in comment (a)(1)-6 above.
(a) Misleading or Inaccurate Advertisements
Comment 8(a)-2 would have required institutions using indoor signs
advertising APYs for tiered-rate accounts to state both the lower and
higher dollar amount for the tier corresponding to the advertised APY.
Many commenters believed stating both dollar amounts is unnecessary.
The Board concurs. Thus, the comment provides that a sign is not
misleading or inaccurate if it states the lower dollar amount of the
tier corresponding to the advertised annual percentage yield.
Institutions cannot advertise accounts as ``free'' or ``no cost''
(or terms of similar meaning) if maintenance and activity fees can be
imposed. Comments 8(a)-3 and 8(a)-4 address the scope of ``maintenance
and activity'' fees and addresses advertisements for ``free'' accounts
with optional electronic services. Commenters were divided on whether
fees for electronic services such as ATM access should preclude
institutions from advertising accounts as free. Based on the comments
received and further analysis, the Board believes that ATM services are
not different from other optional services such as home banking.
The Board believes that because ATM access is provided only upon a
consumer's request and consumers receive information--including the
cost of ATM access--before obtaining the service, the imposition of
fees for ATM access (including annual fees) does not preclude
institutions from advertising accounts as free or no-cost.
The Board received numerous comments on its proposal to consider
the term ``fees waived'' as similar to the terms ``free'' or ``no
cost.'' Many commenters opposed the proposed comment. They stated that
the term ``fees waived'' necessarily implies the existence of charges,
and thus is distinguishable from the terms ``free'' or ``no cost.''
These commenters believed consumers would be unnecessarily
disadvantaged if advertising fee waivers were restricted as proposed.
Others believed most consumers would not distinguish between the terms
and that advertising accounts with ``waived fees'' raised the concerns
the Congress had in mind when prohibiting the advertisement of accounts
as free or no-cost or ``words of similar meaning.'' The Board believes
that ``fees waived'' is a term similar to ``free'' or ``no cost;''
thus, the commentary (now 8(a)-5) has been retained as proposed.
Comment 8(a)-6 has been modified for clarity.
(b) Permissible Rates
Comment 8(b)-3 provides guidance on advertising accounts for which
institutions offer a number of versions (CDs, for example). The Board
has revised the comment for clarity without any intended change in
(c) When Additional Disclosures Are Required
The regulation requires institutions to disclose additional
information when the APY is advertised. Comment 8(c)-1 provides
examples of account descriptions that do not trigger the additional
The Board has eliminated the reference to a bonus of 1% over an
institution's current rate for one-year certificates of deposit as an
example of a trigger term. Based on comments received and upon further
analysis, the Board believes a reference to an institution's own rates
(to which a ``bonus'' rate or margin will be applied) is not a trigger
term if those rates are not readily determinable from the advertisement
itself. This position is consistent with the rules regarding trigger
terms in advertisements under the Board's Regulation Z (12 CFR part
(c)(2) Time Annual Percentage Yield Is Offered
Comment 8(c)(2)-2 has been added in response to commenters'
requests. It specifies that an advertisement may refer to the APY as
being accurate as of the date of publication, if the date is on the
Appendix A--Annual Percentage Yield Calculation
Part II. Annual Percentage Yield Earned for Periodic Statements
Comment app. A.II.A.-1 provides guidance about the treatment of
accrued but uncredited interest in the balances used to calculate the
APYE. The Board believes an inaccurate APYE would result if
institutions include accrued interest in the balance figure when
statements are sent less frequently than interest is credited. But when
periodic statements are issued more frequently than interest is
credited, accrued interest must be included in the balance figure for
APYE computation purposes.
B. Special Formula for Use Where Periodic Statements Are Sent More
Often Than the Period for Which Interest Is Compounded
Comment app. A.II.B.-1 has been adopted as proposed. Institutions
may use the special formula to calculate an APYE on a quarterly
statement whether or not a monthly statement is triggered by Regulation
E during the quarter. Commenters supported this rule as significantly
reducing compliance burdens for institutions.
Comment app. A.II.B.-2 clarifies that the special formula requires
institutions to use the actual number of days in the compounding period
in calculating the APYE. The Board believes using the actual number of
days in a compounding period is necessary to produce an accurate APYE
for a specific consumer's account.
Appendix B--Model Clauses and Sample Forms
Proposed comments app. B-6, B-4-1 and B-9-1 have been deleted as
List of Subjects in 12 CFR Part 230
Advertising, Banks, banking, Consumer protection, Federal Reserve
System, Reporting and recordkeeping requirements, Truth in savings.
For the reasons set forth in the preamble, the Board amends 12 CFR
part 230 as follows:
PART 230--TRUTH IN SAVINGS (REGULATION DD)
1. The authority citation for part 230 continues to read as
Authority: 12 U.S.C. 4301, et seq.
2. Part 230 is amended by adding a new Supplement I at the end of
the appendices to the Part to read as follows:
Supplement I to Part 230--Official Staff Interpretations
1. Official status. This commentary is the means by which the
Division of Consumer and Community Affairs of the Federal Reserve
Board issues official staff interpretations of Regulation DD. Good
faith compliance with this commentary affords protection from
liability under section 271(f) of the Truth in Savings Act.
Section 230.1--Authority, purpose, coverage, and effect on state
1. Foreign applicability. Regulation DD applies to all
depository institutions, except credit unions, that offer deposit
accounts to residents (including resident aliens) of any state as
defined in Sec. 230.2(r). Accounts held in an institution located in
a state are covered, even if funds are transferred periodically to a
location outside the United States. Accounts held in an institution
located outside the United States are not covered, even if held by a
2. Persons who advertise accounts. Persons who advertise
accounts are subject to the advertising rules. For example, if a
deposit broker places an advertisement offering consumers an
interest in an account at a depository institution, the advertising
rules apply to the advertisement, whether the account is to be held
by the broker or directly by the consumer.
1. Covered accounts. Examples of accounts subject to the
i. Interest-bearing and noninterest-bearing accounts
ii. Deposit accounts opened as a condition of obtaining a credit
iii. Accounts denominated in a foreign currency
iv. Individual retirement accounts (IRAs) and simplified employee
pension (SEP) accounts
v. Payable on death (POD) or ``Totten trust'' accounts
2. Other accounts. Examples of accounts not subject to the
i. Mortgage escrow accounts for collecting taxes and property
ii. Accounts established to make periodic disbursements on
iii. Trust accounts opened by a trustee pursuant to a formal written
trust agreement (not merely declarations of trust on a signature
card such as a ``Totten trust,'' or an IRA and SEP account)
iv. Accounts opened by an executor in the name of a decedent's
3. Other investments. The term ``account'' does not apply to all
products of a depository institution. Examples of products not
i. Government securities
ii. Mutual funds
iv. Securities or obligations of a depository institution
v. Contractual arrangements such as repurchase agreements, interest
rate swaps, and bankers acceptances
1. Covered messages. Advertisements include commercial messages
in visual, oral, or print media that invite, offer, or otherwise
announce generally to prospective customers the availability of
consumer accounts--such as:
i. Telephone solicitations
ii. Messages on automated teller machine (ATM) screens
iii. Messages on a computer screen in an institution's lobby
(including any printout) other than a screen viewed solely by the
iv. Messages in a newspaper, magazine, or promotional flyer or on
v. Messages that are provided along with information about the
consumer's existing account and that promote another account at the
2. Other messages. Examples of messages that are not
i. Rate sheets in a newspaper, periodical, or trade journal (unless
the depository institution, or a deposit broker offering accounts at
the institution, pays a fee for or otherwise controls publication)
ii. In-person discussions with consumers about the terms for a
iii. Information given to consumers about existing accounts, such as
current rates recorded on a voice response machine or notices for
automatically renewable time accounts sent before renewal
1. Examples. Bonuses include items of value, other than
interest, offered as incentives to consumers, such as an offer to
pay the final installment deposit for a holiday club account. Items
that are not a bonus include discount coupons for goods or services
at restaurants or stores.
2. De minimis rule. Items with a de minimis value of $10 or less
are not bonuses. Institutions may rely on the valuation standard
used by the Internal Revenue Service to determine if the value of
the item is de minimis. Examples of items of de minimis value are:
i. Disability insurance premiums valued at an amount of $10 or less
ii. Coffee mugs, T-shirts or other merchandise with a market value
of $10 or less
3. Aggregation. In determining if an item valued at $10 or less
is a bonus, institutions must aggregate per account per calendar
year items that may be given to consumers. In making this
determination, institutions aggregate per account only the market
value of items that may be given for a specific promotion. To
illustrate, assume an institution offers in January to give
consumers an item valued at $7 for each calendar quarter during the
year that the average account balance in a negotiable order of
withdrawal (NOW) account exceeds $10,000. The bonus rules are
triggered, since consumers are eligible under the promotion to
receive up to $28 during the year. However, the bonus rules are not
triggered if an item valued at $7 is offered to consumers opening a
NOW account during the month of January, even though in November the
institution introduces a new promotion that includes, for example,
an offer to existing NOW account holders for an item valued at $8
for maintaining an average balance of $5,000 for the month.
4. Waiver or reduction of a fee or absorption of expenses.
Bonuses do not include value that consumers receive through the
waiver or reduction of fees (even if the fees waived exceed $10) for
banking-related services such as the following:
i. A safe deposit box rental fee for consumers who open a new
ii. Fees for travelers checks for account holders
iii. Discounts on interest rates charged for loans at the
1. Professional capacity. Examples of accounts held by a natural
person in a professional capacity for another are attorney-client
trust accounts and landlord-tenant security accounts.
2. Other accounts. Accounts not held in a professional capacity
include accounts held by an individual for a child under the Uniform
Gifts to Minors Act.
3. Sole proprietors. Accounts held by individuals as sole
proprietors are not covered.
4. Retirement plans. IRAs and SEP accounts are consumer accounts
to the extent that funds are invested in covered accounts. But Keogh
accounts are not subject to the regulation.
5. Unincorporated associations. An institution may rely on the
declaration of the person representing an unincorporated association
as to whether the account is held for a business or nonbusiness
(j) Depository institution and institution
1. Foreign institutions. Branches of foreign institutions
located in the United States are subject to the regulation if they
offer deposit accounts to consumers. Edge Act and Agreement
corporations, and agencies of foreign institutions, are not
depository institutions for purposes of this regulation.
(k) Deposit broker
1. General. A deposit broker is a person who is in the business
of placing or facilitating the placement of deposits in an
institution, as defined by the Federal Deposit Insurance Act (12
1. Relation to Regulation Q. While bonuses are not interest for
purposes of this regulation, other regulations may treat them as the
equivalent of interest. For example, Regulation Q identifies
payments of cash or merchandise that violate the prohibition against
paying interest on demand accounts. (See 12 CFR Sec. 217.2(d).)
(p) Passbook savings account
1. Relation to Regulation E. Passbook savings accounts include
accounts accessed by preauthorized electronic fund transfers to the
account (as defined in 12 CFR Sec. 205.2(j)), such as an account
that receives direct deposit of social security payments. Accounts
permitting access by other electronic means are not ``passbook
saving accounts'' and must comply with the requirements of
Sec. 230.6 if statements are sent four or more times a year.
(q) Periodic statement
1. Examples. Periodic statements do not include:
i. Additional statements provided solely upon request
ii. Information provided by computer through home banking services
iii. General service information such as a quarterly newsletter or
other correspondence describing available services and products
(t) Tiered-rate account
1. Time accounts. Time accounts paying different rates based
solely on the amount of the initial deposit are not tiered-rate
2. Minimum balance requirements. A requirement to maintain a
minimum balance to earn interest does not make an account a tiered-
(u) Time account
1. Club accounts. Although club accounts typically have a
maturity date, they are not time accounts unless they also require a
penalty of at least seven days' interest for withdrawals during the
first six days after the account is opened.
2. Relation to Regulation D. Regulation D permits in limited
circumstances the withdrawal of funds without penalty during the
first six days after a ``time deposit'' is opened. (See 12 CFR
Sec. 204.2(c)(1)(i).) But the fact that a consumer makes a
withdrawal as permitted by Regulation D does not disqualify the
account from being a time account for purposes of this regulation.
(v) Variable-rate account
1. General. A certificate of deposit permitting one or more rate
adjustments prior to maturity at the consumer's option is a
Section 230.3 General disclosure requirements.
1. Design requirements. Disclosures must be presented in a
format that allows consumers to readily understand the terms of
their account. Institutions are not required to use a particular
type size or typeface, nor are institutions required to state any
term more conspicuously than any other term. Disclosures may be
i. In any order
ii. In combination with other disclosures or account terms
iii. In combination with disclosures for other types of accounts, as
long as it is clear to consumers which disclosures apply to their
iv. On more than one page and on the front and reverse sides
v. By using inserts to a document or filling in blanks
vi. On more than one document, as long as the documents are provided
at the same time
2. Consistent terminology. Institutions must use consistent
terminology to describe terms or features required to be disclosed.
For example, if an institution describes a monthly fee (regardless
of account activity) as a ``monthly service fee'' in account-opening
disclosures, the periodic statement and change-in-term notices must
use the same terminology so that consumers can readily identify the
1. Specificity of legal obligation. Institutions may refer to
the calendar month or to roughly equivalent intervals during a
calendar year as a ``month.''
(c) Relation to Regulation E
1. General rule. Compliance with Regulation E (12 CFR part 205)
is deemed to satisfy the disclosure requirements of this regulation,
such as when:
i. An institution changes a term that triggers a notice under
Regulation E, and uses the timing and disclosure rules of Regulation
E for sending change-in-term notices
ii. Consumers add an ATM access feature to an account, and the
institution provides disclosures pursuant to Regulation E, including
disclosure of fees (See 12 CFR Sec. 205.7.)
iii. An institution complying with the timing rules of Regulation E
discloses at the same time fees for electronic services (such as for
balance inquiry fees at ATMs) required to be disclosed by this
regulation but not by Regulation E
iv. An institution relies on Regulation E's rules regarding
disclosure of limitations on the frequency and amount of electronic
fund transfers, including security-related exceptions. But any
limitations on ``intra-institutional transfers'' to or from the
consumer's other accounts during a given time period must be
disclosed, even though intra-institutional transfers are exempt from
(e) Oral response to inquiries
1. Application of rule. Institutions are not required to provide
rate information orally.
2. Relation to advertising. The advertising rules do not cover
an oral response to a question about rates.
3. Existing accounts. This paragraph does not apply to oral
responses about rate information for existing accounts. For example,
if a consumer holding a one-year certificate of deposit (CD)
requests interest rate information about the CD during the term, the
institution need not disclose the annual percentage yield.
(f) Rounding and accuracy rules for rates and yields
1. Permissible rounding. Examples of permissible rounding are an
annual percentage yield calculated to be 5.644%, rounded down and
disclosed as 5.64%; 5.645% rounded up and disclosed as 5.65%.
1. Annual percentage yield and annual percentage yield earned.
The tolerance for annual percentage yield and annual percentage
yield earned calculations is designed to accommodate inadvertent
errors. Institutions may not purposely incorporate the tolerance
into their calculation of yields.
Section 230.4 Account disclosures.
(a) Delivery of account disclosures
(a)(1) Account opening
1. New accounts. New account disclosures must be provided when:
i. A time account that does not automatically rollover is renewed by
ii. A consumer changes a term for a renewable time account (see
Sec. 230.5(b)-5 regarding disclosure alternatives)
iii. An institution transfers funds from an account to open a new
account not at the consumer's request, unless the institution
previously gave account disclosures and any change-in-term notices
for the new account
iv. An institution accepts a deposit from a consumer to an account
that the institution had deemed closed for the purpose of treating
accrued but uncredited interest as forfeited interest (see
2. Acquired accounts. New account disclosures need not be given
when an institution acquires an account through an acquisition of or
merger with another institution (but see Sec. 230.5(a) regarding
advance notice requirements if terms are changed).
1. Inquiries versus requests. A response to an oral inquiry (by
telephone or in person) about rates and yields or fees does not
trigger the duty to provide account disclosures. But when consumers
ask for written information about an account (whether by telephone,
in person, or by other means), the institution must provide
disclosures unless the account is no longer offered to the public.
2. General requests. When responding to a consumer's general
request for disclosures about a type of account (a NOW account, for
example), an institution that offers several variations may provide
disclosures for any one of them.
3. Timing for response. Ten business days is a reasonable time
for responding to requests for account information that consumers do
not make in person.
1. Recent rates. Institutions comply with this paragraph if they
disclose an interest rate and annual percentage yield accurate
within the seven calendar days preceding the date they send the
1. Term. Describing the maturity of a time account as ``1 year''
or ``6 months,'' for example, illustrates a statement of the
maturity of a time account as a term rather than a date (``January
(b) Content of account disclosures
(b)(1) Rate information
(b)(1)(i) Annual percentage yield and interest rate
1. Rate disclosures. In addition to the interest rate and annual
percentage yield, institutions may disclose a periodic rate
corresponding to the interest rate. No other rate or yield (such as
``tax effective yield'') is permitted. If the annual percentage
yield is the same as the interest rate, institutions may disclose a
single figure but must use both terms.
2. Fixed-rate accounts. For fixed-rate time accounts paying the
opening rate until maturity, institutions may disclose the period of
time the interest rate will be in effect by stating the maturity
date. (See Appendix B, B-7--Sample Form.) For other fixed-rate
accounts, institutions may use a date (``This rate will be in effect
through May 4, 1995'') or a period (``This rate will be in effect
for at least 30 days'').
3. Tiered-rate accounts. Each interest rate, along with the
corresponding annual percentage yield for each specified balance
level (or range of annual percentage yields, if appropriate), must
be disclosed for tiered-rate accounts. (See Appendix A, Part I,
4. Stepped-rate accounts. A single composite annual percentage
yield must be disclosed for stepped-rate accounts. (See Appendix A,
Part I, Paragraph B.) The interest rates and the period of time each
will be in effect also must be provided. When the initial rate
offered for a specified time on a variable-rate account is higher or
lower than the rate that would otherwise be paid on the account, the
calculation of the annual percentage yield must be made as if for a
stepped-rate account. (See Appendix A, Part I, Paragraph C.)
(b)(1)(ii) Variable rates
1. Determining interest rates. To disclose how the interest rate
is determined, institutions must:
i. Identify the index and specific margin, if the interest rate is
tied to an index
ii. State that rate changes are within the institution's discretion,
if the institution does not tie changes to an index
1. Frequency of rate changes. An institution reserving the right
to change rates at its discretion must state the fact that rates may
change at any time.
1. Limitations. A floor or ceiling on rates or on the amount the
rate may decrease or increase during any time period must be
disclosed. Institutions need not disclose the absence of limitations
on rate changes.
(b)(2) Compounding and crediting
(b)(2)(ii) Effect of closing an account
1. Deeming an account closed. An institution may, subject to
state or other law, provide in its deposit contracts the actions by
consumers that will be treated as closing the account and that will
result in the forfeiture of accrued but uncredited interest. An
example is the withdrawal of all funds from the account prior to the
date that interest is credited.
(b)(3) Balance information
(b)(3)(ii) Balance computation method
1. Methods and periods. Institutions may use different methods
or periods to calculate minimum balances for purposes of imposing a
fee (the daily balance for a calendar month, for example) and
accruing interest (the average daily balance for a statement period,
for example). Each method and corresponding period must be
(b)(3)(iii) When interest begins to accrue
1. Additional information. Institutions may disclose additional
information such as the time of day after which deposits are treated
as having been received the following business day, and may use
additional descriptive terms such as ``ledger'' or ``collected''
balances to disclose when interest begins to accrue.
1. Covered fees. The following are types of fees that must be
i. Maintenance fees, such as monthly service fees
ii. Fees to open or to close an account
iii. Fees related to deposits or withdrawals, such as fees for use
of the institution's ATMs
iv. Fees for special services, such as stop-payment fees, fees for
balance inquiries or verification of deposits, fees associated with
checks returned unpaid, and fees for regularly sending to consumers
checks that otherwise would be held by the institution
2. Other fees. Institutions need not disclose fees such as the
i. Fees for services offered to account and nonaccount holders
alike, such as travelers checks and wire transfers (even if
different amounts are charged to account and nonaccount holders)
ii. Incidental fees, such as fees associated with state escheat
laws, garnishment or attorneys fees, and fees for photocopying
3. Amount of fees. Institutions must state the amount and
conditions under which a fee may be imposed. Naming and describing
the fee (such as ``$4.00 monthly service fee'') will typically
satisfy these requirements.
4. Tied-accounts. Institutions must state if fees that may be
assessed against an account are tied to other accounts at the
institution. For example, if an institution ties the fees payable on
a NOW account to balances held in the NOW account and a savings
account, the NOW account disclosures must state that fact and
explain how the fee is determined.
(b)(5) Transaction limitations
1. General rule. Examples of limitations on the number or dollar
amount of deposits or withdrawals that institutions must disclose
i. Limits on the number of checks that may be written on an account
within a given time period
ii. Limits on withdrawals or deposits during the term of a time
iii. Limitations required by Regulation D on the number of
withdrawals permitted from money market deposit accounts by check to
third parties each month. Institutions need not disclose
reservations of right to require notices for withdrawals from
accounts required by federal or state law.
(b)(6) Features of time accounts
(b)(6)(i) Time requirements
1. ``Callable'' time accounts. In addition to the maturity date,
an institution must state the date or the circumstances under which
it may redeem a time account at the institution's option (a
``callable'' time account).
(b)(6)(ii) Early withdrawal penalties
1. General. The term ``penalty'' may but need not be used to
describe the loss of interest that consumers may incur for early
withdrawal of funds from time accounts.
2. Examples. Examples of early withdrawal penalties are:
i. Monetary penalties, such as ``$10.00'' or ``seven days' interest
plus accrued but uncredited interest''
ii. Adverse changes to terms such as a lowering of the interest
rate, annual percentage yield, or compounding frequency for funds
remaining on deposit
iii. Reclamation of bonuses
3. Relation to rules for IRAs or similar plans. Penalties
imposed by the Internal Revenue Code for certain withdrawals from
IRAs or similar pension or savings plans are not early withdrawal
penalties for purposes of this regulation.
4. Disclosing penalties. Penalties may be stated in months,
whether institutions assess the penalty using the actual number of
days during the period or using another method such as a number of
days that occurs in any actual sequence of the total calendar months
involved. For example, stating ``one month's interest'' is
permissible, whether the institution assesses 30 days' interest
during the month of April, or selects a time period between 28 and
31 days for calculating the interest for all early withdrawals
regardless of when the penalty is assessed.
(b)(6)(iv) Renewal policies
1. Rollover time accounts. Institutions offering a grace period
on time accounts that automatically renew need not state whether
interest will be paid if the funds are withdrawn during the grace
2. Nonrollover time accounts. Institutions paying interest on
funds following the maturity of time accounts that do not renew
automatically need not state the rate (or annual percentage yield)
that may be paid. (See Appendix B, Model Clause B-1(h)(iv)(2).)
Section 230.5 Subsequent disclosures.
(a) Change in terms
(a)(1) Advance notice required
1. Form of notice. Institutions may provide a change-in-term
notice on or with a periodic statement or in another mailing. If an
institution provides notice through revised account disclosures, the
changed term must be highlighted in some manner. For example,
institutions may note that a particular fee has been changed (also
specifying the new amount) or use an accompanying letter that refers
to the changed term.
2. Effective date. An example of language for disclosing the
effective date of a change is ``As of November 21, 1994.''
3. Terms that change upon the occurrence of an event. An
institution offering terms that will automatically change upon the
occurrence of a stated event need not send an advance notice of the
change provided the institution fully describes the conditions of
the change in the account opening disclosures (and sends any change-
in-term notices regardless of whether the changed term affects that
consumer's account at that time).
4. Examples. Examples of changes not requiring an advance
change-in-terms notice are:
i. The termination of employment for consumers for whom account
maintenance or activity fees were waived during their employment by
the depository institution
ii. The expiration of one year in a promotion described in the
account opening disclosures to ``waive $4.00 monthly service charges
for one year''
(a)(2) No notice required
(a)(2)(ii) Check printing fees
1. Increase in fees. A notice is not required for an increase in
fees for printing checks (or deposit and withdrawal slips) even if
the institution adds some amount to the price charged by the vendor.
(b) Notice before maturity for time accounts longer than one
month that renew automatically
1. Maturity dates on nonbusiness days. In determining the term
of a time account, institutions may disregard the fact that the term
will be extended beyond the disclosed number of days because the
disclosed maturity falls on a nonbusiness day. For example, a
holiday or weekend may cause a ``one-year'' time account to extend
beyond 365 days (or 366, in a leap year) or a ``one-month'' time
account to extend beyond 31 days.
2. Disclosing when rates will be determined. Ways to disclose
when the annual percentage yield will be available include the use
i. A specific date, such as ``October 28''
ii. A date that is easily determinable, such as ``the Tuesday before
the maturity date stated on this notice'' or ``as of the maturity
date stated on this notice''
3. Alternative timing rule. Under the alternative timing rule,
an institution offering a 10-day grace period would have to provide
the disclosures at least 10 days prior to the scheduled maturity
4. Club accounts. If consumers have agreed to the transfer of
payments from another account to a club time account for the next
club period, the institution must comply with the requirements for
automatically renewable time accounts--even though consumers may
withdraw funds from the club account at the end of the current club
5. Renewal of a time account. In the case of a change in terms
that becomes effective if a rollover time account is subsequently
i. If the change is initiated by the institution, the disclosure
requirements of this paragraph apply. (Paragraph 230.5(a) applies if
the change becomes effective prior to the maturity of the existing
ii. If the change is initiated by the consumer, the account opening
disclosure requirements of Sec. 230.4(b) apply. (If the notice
required by this paragraph has been provided, institutions may give
new account disclosures or disclosures highlighting only the new
6. Example. If a consumer receives a prematurity notice on a
one-year time account and requests a rollover to a six-month
account, the institution must provide either account opening
disclosures including the new maturity date or, if all other terms
previously disclosed in the prematurity notice remain the same, only
the new maturity date.
(b)(1) Maturities of longer than one year
1. Highlighting changed terms. Institutions need not highlight
terms that changed since the last account disclosures were provided.
(c) Notice for time accounts one month or less that renew
1. Providing disclosures within a reasonable time. Generally, 10
calendar days after an account renews is a reasonable time for
providing disclosures. For time accounts shorter than 10 days,
disclosures should be given prior to the next renewal date. For
example, if a time account automatically renews every seven days,
disclosures about an account that renews on Wednesday, December 7,
1994, should be given prior to Wednesday, December 14.
(d) Notice before maturity for time accounts longer than one
year that do not renew automatically
1. Subsequent account. When funds are transferred following
maturity of a nonrollover time account, institutions need not
provide account disclosures unless a new account is established.
Section 230.6 Periodic statement disclosures.
(a) General rule
1. General. Institutions are not required to provide periodic
statements. If they do provide statements, disclosures need only be
furnished to the extent applicable. For example, if no interest is
earned for a statement period, institutions need not state that
fact. Or, institutions may disclose ``$0'' interest earned and
``0%'' annual percentage yield earned.
2. Regulation E interim statements. When an institution provides
regular quarterly statements, and in addition provides a monthly
interim statement to comply with Regulation E, the interim statement
need not comply with this section unless it states interest or rate
information. (See 12 CFR Sec. 205.9(b).)
3. Combined statements. Institutions may provide information
about an account (such as an MMDA) on the periodic statement for
another account (such as a NOW account) without triggering the
disclosures required by this section, as long as:
i. The information is limited to the account number, the type of
account, or balance information, and
ii. The institution also provides a periodic statement complying
with this section for each account.
4. Other information. Additional information that may be given
on or with a periodic statement includes:
i. Interest rates and corresponding periodic rates applied to
balances during the statement period
ii. The dollar amount of interest earned year-to-date
iii. Bonuses paid (or any de minimis consideration of $10 or less)
iv. Fees for products such as safe deposit boxes
(a)(1) Annual percentage yield earned
1. Ledger and collected balances. Institutions that accrue
interest using the collected balance method may use either the
ledger or the collected balance in determining the annual percentage
(a)(2) Amount of interest
1. Accrued interest. Institutions must state the amount of
interest that accrued during the statement period, even if it was
2. Terminology. In disclosing interest earned for the period,
institutions must use the term ``interest'' or terminology such as:
i. ``Interest paid,'' to describe interest that has been credited
ii. ``Interest accrued'' or ``interest earned,'' to indicate that
interest is not yet credited
3. Closed accounts. If consumers close an account between
crediting periods and forfeits accrued interest, the institution may
not show any figures for interest earned or annual percentage yield
earned for the period (other than zero, at the institution's
(a)(3) Fees imposed
1. General. Periodic statements must state fees disclosed under
Sec. 230.4(b) that were debited to the account during the statement
period, even if assessed for an earlier period.
2. Itemizing fees by type. In itemizing fees imposed more than
once in the period, institutions may group fees if they are the same
type. But the description must make clear that the dollar figure
represents more than a single fee, for example, ``total fees for
checks written this period.'' Examples of fees that may not be
grouped together are:
i. Monthly maintenance and excess activity fees
ii. ``Transfer'' fees, if different dollar amounts are imposed--such
as $.50 for deposits and $1.00 for withdrawals
iii. Fees for electronic fund transfers and fees for other services,
such as balance inquiry or maintenance fees
3. Identifying fees. Statement details must enable consumers to
identify the specific fee. For example:
i. Institutions may use a code to identify a particular fee if the
code is explained on the periodic statement or in documents
accompanying the statement.
ii. Institutions using debit slips may disclose the date the fee was
debited on the periodic statement and show the amount and type of
fee on the dated debit slip.
4. Relation to Regulation E. Disclosure of fees in compliance
with Regulation E complies with this section for fees related to
electronic fund transfers (for example, totaling all electronic
funds transfer fees in a single figure).
(a)(4) Length of period
1. General. Institutions providing the beginning and ending
dates of the period must make clear whether both dates are included
in the period.
2. Opening or closing an account mid-cycle. If an account is
opened or closed during the period for which a statement is sent,
institutions must calculate the annual percentage yield earned based
on account balances for each day the account was open.
(b) Special rule for average daily balance method
1. Monthly statements and quarterly compounding. This rule
applies, for example, when an institution calculates interest on a
quarterly average daily balance and sends monthly statements. In
this case, the first two monthly statements would omit annual
percentage yield earned and interest earned figures; the third
monthly statement would reflect the interest earned and the annual
percentage yield earned for the entire quarter.
2. Length of the period. Institutions must disclose the length
of both the interest calculation period and the statement period.
For example, a statement could disclose a statement period of April
16 through May 15 and further state that ``the interest earned and
the annual percentage yield earned are based on your average daily
balance for the period April 1 through April 30.''
3. Quarterly statements and monthly compounding. Institutions
that use the average daily balance method to calculate interest on a
monthly basis and that send statements on a quarterly basis may
disclose a single interest (and annual percentage yield earned)
figure. Alternatively, an institution may disclose three interest
and three annual percentage yield earned figures, one for each month
in the quarter, as long as the institution states the number of days
(or beginning and ending dates) in the interest period if different
from the statement period.
Section 230.7 Payment of interest.
(a)(1) Permissible methods
1. Prohibited calculation methods. Calculation methods that do
not comply with the requirement to pay interest on the full amount
of principal in the account each day include:
i. Paying interest on the balance in the account at the end of the
period (the ``ending balance'' method)
ii. Paying interest for the period based on the lowest balance in
the account for any day in that period (the ``low balance'' method)
iii. Paying interest on a percentage of the balance, excluding the
amount set aside for reserve requirements (the ``investable
2. Use of 365-day basis. Institutions may apply a daily periodic
rate greater than 1/365 of the interest rate--such as 1/360 of the
interest rate--as long as it is applied 365 days a year.
3. Periodic interest payments. An institution can pay interest
each day on the account and still make uniform interest payments.
For example, for a one-year certificate of deposit an institution
could make monthly interest payments equal to 1/12 of the amount of
interest that will be earned for a 365-day period (or 11 uniform
monthly payments--each equal to roughly 1/12 of the total amount of
interest--and one payment that accounts for the remainder of the
total amount of interest earned for the period).
4. Leap year. Institutions may apply a daily rate of 1/366 or 1/
365 of the interest rate for 366 days in a leap year, if the account
will earn interest for February 29.
5. Maturity of time accounts. Institutions are not required to
pay interest after time accounts mature. (See 12 CFR part 217, the
Board's Regulation Q, for limitations on duration of interest
payments.) Examples include:
i. During a grace period offered for an automatically renewable time
account, if consumers decide during that period not to renew the
ii. Following the maturity of nonrollover time accounts
iii. When the maturity date falls on a holiday, and consumers must
wait until the next business day to obtain the funds
6. Dormant accounts. Institutions must pay interest on funds in
an account, even if inactivity or the infrequency of transactions
would permit the institution to consider the account to be
``inactive'' or ``dormant'' (or similar status) as defined by state
or other law or the account contract.
(a)(2) Determination of minimum balance to earn interest
1. Daily balance accounts. Institutions that require a minimum
balance may choose not to pay interest for days when the balance
drops below the required minimum, if they use the daily balance
method to calculate interest.
2. Average daily balance accounts. Institutions that require a
minimum balance may choose not to pay interest for the period in
which the balance drops below the required minimum, if they use the
average daily balance method to calculate interest.
3. Beneficial method. Institutions may not require that
consumers maintain both a minimum daily balance and a minimum
average daily balance to earn interest, such as by requiring
consumers to maintain a $500 daily balance and a prescribed average
daily balance (whether higher or lower). But an institution could
offer a minimum balance to earn interest that includes an additional
method that is ``unequivocally beneficial'' to consumers such as the
following: An institution using the daily balance method to
calculate interest and requiring a $500 minimum daily balance could
offer to pay interest on the account for those days the minimum
balance is not met as long as consumers maintain an average daily
balance throughout the month of $400.
4. Paying on full balance. Institutions must pay interest on the
full balance in the account that meets the required minimum balance.
For example, if $300 is the minimum daily balance required to earn
interest, and a consumer deposits $500, the institution must pay the
stated interest rate on the full $500 and not just on $200.
5. Negative balances prohibited. Institutions must treat a
negative account balance as zero to determine:
i. The daily or average daily balance on which interest will be paid
ii. Whether any minimum balance to earn interest is met
6. Club accounts. Institutions offering club accounts (such as a
``holiday'' or ``vacation'' club) cannot impose a minimum balance
requirement for interest based on the total number or dollar amount
of payments required under the club plan. For example, if a plan
calls for $10 weekly payments for 50 weeks, the institution cannot
set a $500 ``minimum balance'' and then pay interest only if the
consumer has made all 50 payments.
7. Minimum balances not affecting interest. Institutions may use
the daily balance, average daily balance, or any other computation
method to calculate minimum balance requirements not involving the
payment of interest--such as to compute minimum balances for
(b) Compounding and crediting policies
1. General. Institutions choosing to compound interest may
compound or credit interest annually, semi-annually, quarterly,
monthly, daily, continuously, or on any other basis.
2. Withdrawals prior to crediting date. If consumers withdraw
funds (without closing the account) prior to a scheduled crediting
date, institutions may delay paying the accrued interest on the
withdrawn amount until the scheduled crediting date, but may not
avoid paying interest.
3. Closed accounts. Subject to state or other law, an
institution may choose not to pay accrued interest if consumers
close an account prior to the date accrued interest is credited, as
long as the institution has disclosed that fact.
(c) Date interest begins to accrue
1. Relation to Regulation CC. Institutions may rely on the
Expedited Funds Availability Act (EFAA) and Regulation CC (12 CFR
part 229) to determine, for example, when a deposit is considered
made for purposes of interest accrual, or when interest need not be
paid on funds because a deposited check is later returned unpaid.
2. Ledger and collected balances. Institutions may calculate
interest by using a ``ledger'' or ``collected'' balance method, as
long as the crediting requirements of the EFAA are met (12 CFR
3. Withdrawal of principal. Institutions must accrue interest on
funds until the funds are withdrawn from the account. For example,
if a check is debited to an account on a Tuesday, the institution
must accrue interest on those funds through Monday.
Section 230.8 Advertising.
(a) Misleading or inaccurate advertisements
1. General. All advertisements are subject to the rule against
misleading or inaccurate advertisements, even though the disclosures
applicable to various media differ.
2. Indoor signs. An indoor sign advertising an annual percentage
yield is not misleading or inaccurate when:
i. For a tiered-rate account, it also provides the lower dollar
amount of the tier corresponding to the advertised annual percentage
ii. For a time account, it also provides the term required to obtain
the advertised annual percentage yield
3. Fees affecting ``free'' accounts. For purposes of determining
whether an account can be advertised as ``free'' or ``no cost,''
maintenance and activity fees include:
i. Any fee imposed when a minimum balance requirement is not met, or
when consumers exceed a specified number of transactions
ii. Transaction and service fees that consumers reasonably expect to
be imposed on a regular basis
iii. A flat fee, such as a monthly service fee
iv. Fees imposed to deposit, withdraw, or transfer funds, including
per-check or per-transaction charges (for example, $.25 for each
withdrawal, whether by check or in person)
4. Other fees. Examples of fees that are not maintenance or
activity fees include:
i. Fees not required to be disclosed under Sec. 230.4(b)(4)
ii. Check printing fees
iii. Balance inquiry fees
iv. Stop-payment fees and fees associated with checks returned
v. Fees assessed against a dormant account
vi. Fees for ATM or electronic transfer services (such as
preauthorized transfers or home banking services) not required to
obtain an account
5. Similar terms. An advertisement may not use the term ``fees
waived'' if a maintenance or activity fee may be imposed because it
is similar to the terms ``free'' or ``no cost.''
6. Specific account services. Institutions may advertise a
specific account service or feature as free if no fee is imposed for
that service or feature. For example, institutions offering an
account that is free of deposit or withdrawal fees could advertise
that fact, as long as the advertisement does not mislead consumers
by implying that the account is free and that no other fee (a
monthly service fee, for example) may be charged.
7. Free for limited time. If an account (or a specific account
service) is free only for a limited period of time--for example, for
one year following the account opening--the account (or service) may
be advertised as free if the time period is also stated.
8. Conditions not related to deposit accounts. Institutions may
advertise accounts as ``free'' for consumers meeting conditions not
related to deposit accounts, such as the consumer's age. For
example, institutions may advertise a NOW account as ``free for
persons over 65 years old,'' even though a maintenance or activity
fee is assessed on accounts held by consumers 65 or younger.
(b) Permissible rates
1. Tiered-rate accounts. An advertisement for a tiered-rate
account that states an annual percentage yield must also state the
annual percentage yield for each tier, along with corresponding
minimum balance requirements. Any interest rates stated must appear
in conjunction with the applicable annual percentage yields for each
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.
3. Representative examples. An advertisement that states an
annual percentage yield for a given type of account (such as a time
account for a specified term) need not state the annual percentage
yield applicable to other time accounts offered by the institution
or indicate that other maturity terms are available. In an
advertisement stating that rates for an account may vary depending
on the amount of the initial deposit or the term of a time account,
institutions need not list each balance level and term offered.
Instead, the advertisement may:
i. Provide a representative example of the annual percentage yields
offered, clearly described as such. For example, if an institution
offers a $25 bonus on all time accounts and the annual percentage
yield will vary depending on the term selected, the institution may
provide a disclosure of the annual percentage yield as follows:
``For example, our 6-month certificate of deposit currently pays a
3.15% annual percentage yield.''
ii. Indicate that various rates are available, such as by stating
short-term and longer-term maturities along with the applicable
annual percentage yields: ``We offer certificates of deposit with
annual percentage yields that depend on the maturity you choose. For
example, our one-month CD earns a 2.75% APY. Or, earn a 5.25% APY
for a three-year CD.''
(c) When additional disclosures are required
1. Trigger terms. The following are examples of information
stated in advertisements that are not ``trigger'' terms:
i. ``One, three, and five year CDs available''
ii. ``Bonus rates available''
iii. ``1% over our current rates,'' so long as the rates are not
determinable from the advertisement
(c)(2) Time annual percentage yield is offered
1. Specified date. If an advertisement discloses an annual
percentage yield as of a specified date, that date must be recent in
relation to the publication or broadcast frequency of the media
used, taking into account the particular circumstances or production
deadlines involved. For example, the printing date of a brochure
printed once for a deposit account promotion that will be in effect
for six months would be considered ``recent,'' even though rates
change during the six-month period. Rates published in a daily
newspaper or on television must reflect rates offered shortly before
(or on) the date the rates are published or broadcast.
2. Reference to date of publication. An advertisement may refer
to the annual percentage yield as being accurate as of the date of
publication, if the date is on the publication itself. For instance,
an advertisement in a periodical may state that a rate is ``current
through the date of this issue,'' if the periodical shows the date.
(c)(5) Effect of fees
1. Scope. This requirement applies only to maintenance or
activity fees described in paragraph 8(a).
(c)(6) Features of time accounts
(c)(6)(i) Time requirements
1. Club accounts. If a club account has a maturity date but the
term may vary depending on when the account is opened, institutions
may use a phrase such as: ``The maturity date of this club account
is November 15; its term varies depending on when the account is
(c)(6)(ii) Early withdrawal penalties
1. Discretionary penalties. Institutions imposing early
withdrawal penalties on a case-by-case basis may disclose that they
``may'' (rather than ``will'') impose a penalty if such a disclosure
accurately describes the account terms.
1. General reference to ``bonus.'' General statements such as
``bonus checking'' or ``get a bonus when you open a checking
account'' do not trigger the bonus disclosures.
(e) Exemption for certain advertisements
(e)(1) Certain media
1. Tiered-rate accounts. Solicitations for a tiered-rate account
made through telephone response machines must provide the annual
percentage yields and the balance requirements applicable to each
(e)(2) Indoor signs
1. General. Indoor signs include advertisements displayed on
computer screens, banners, preprinted posters, and chalk or peg
boards. Any advertisement inside the premises that can be retained
by a consumer (such as a brochure or a printout from a computer) is
not an indoor sign.
2. Consumers outside the premises. Advertisements may be
``indoor signs'' even though they may be viewed by consumers from
outside. An example is a banner, in an institution's glass-enclosed
branch office, that is located behind a teller facing customers but
is readable by passersby.
Section 230.9 Enforcement and record retention.
(c) Record retention
1. Evidence of required actions. Institutions comply with the
regulation by demonstrating that they have done the following:
i. Established and maintained procedures for paying interest and
providing timely disclosures as required by the regulation, and
ii. Retained sample disclosures for each type of account offered to
consumers, such as account-opening disclosures, copies of
advertisements, and change-in-term notices; and information
regarding the interest rates and annual percentage yields offered.
2. Methods of retaining evidence. Institutions must be able to
reconstruct the required disclosures or other actions. They need not
keep disclosures or other business records in hard copy. Records
evidencing compliance may be retained on microfilm, microfiche, or
by other methods that reproduce records accurately (including
3. Payment of interest. Institutions must retain sufficient rate
and balance information to permit the verification of interest paid
on an account, including the payment of interest on the full
Appendix A to Part 230--Annual Percentage Yield Calculation
Part I. Annual Percentage Yield for Account Disclosures and Advertising
1. Rounding for calculations. The following are examples of
permissible rounding for calculating interest and the annual
i. The daily rate applied to a balance carried to five or more
ii. The daily interest earned carried to five or more decimal places
Part II. Annual Percentage Yield Earned for Periodic Statements
1. Balance method. The interest figure used in the calculation
of the annual percentage yield earned may be derived from the daily
balance method or the average daily balance method. The balance used
in the formula for the annual percentage yield earned is the sum of
the balances for each day in the period divided by the number of
days in the period.
2. Negative balances prohibited. Institutions must treat a
negative account balance as zero to determine the balance on which
the annual percentage yield earned is calculated. (See commentary to
A. General Formula
1. Accrued but uncredited interest. To calculate the annual
percentage yield earned, accrued but uncredited interest:
i. May not be included in the balance for statements issued at the
same time or less frequently than the account's compounding and
crediting frequency. For example, if monthly statements are sent for
an account that compounds interest daily and credits interest
monthly, the balance may not be increased each day to reflect the
effect of daily compounding.
ii. Must be included in the balance for succeeding statements if a
statement is issued more frequently than compounded interest is
credited on an account. For example, if monthly statements are sent
for an account that compounds interest daily and credits interest
quarterly, the balance for the second monthly statement would
include interest that had accrued for the prior month.
2. Rounding. The interest earned figure used to calculate the
annual percentage yield earned must be rounded to two decimals and
reflect the amount actually paid. For example, if the interest
earned for a statement period is $20.074 and the institution pays
the consumer $20.07, the institution must use $20.07 (not $20.074)
to calculate the annual percentage yield earned. For accounts paying
interest based on the daily balance method that compound and credit
interest quarterly, and send monthly statements, the institution
may, but need not, round accrued interest to two decimals for
calculating the annual percentage yield earned on the first two
monthly statements issued during the quarter. However, on the
quarterly statement the interest earned figure must reflect the
amount actually paid.
B. Special Formula for Use Where Periodic Statement is Sent More Often
Than the Period for Which Interest is Compounded
1. Statements triggered by Regulation E. Institutions may, but
need not, use this formula to calculate the annual percentage yield
earned for accounts that receive quarterly statements and are
subject to Regulation E's rule calling for monthly statements when
an electronic fund transfer has occurred. They may do so even though
no monthly statement was issued during a specific quarter. But
institutions must use this formula for accounts that compound and
credit interest quarterly and receive monthly statements that, while
triggered by Regulation E, comply with the provisions of Sec. 230.6.
2. Days in compounding period. Institutions using the special
annual percentage yield earned formula must use the actual number of
days in the compounding period.
Appendix B to Part 230--Model Clauses and Sample Forms
1. Modifications. Institutions that modify the model clauses
will be deemed in compliance as long as they do not delete required
information or rearrange the format in a way that affects the
substance or clarity of the disclosures.
2. Format. Institutions may use inserts to a document (see
Sample Form B-4) or fill-in blanks (see Sample Forms B-5, B-6 and B-
7, which use underlining to indicate terms that have been filled in)
to show current rates, fees, or other terms.
3. Disclosures for opening accounts. The sample forms illustrate
the information that must be provided to consumers when an account
is opened, as required by Sec. 230.4(a)(1). (See Sec. 230.4(a)(2),
which states the requirements for disclosing the annual percentage
yield, the interest rate, and the maturity of a time account in
responding to a consumer's request.)
4. Compliance with Regulation E. Institutions may satisfy
certain requirements under Regulation DD with disclosures that meet
the requirements of Regulation E. (See Sec. 230.3(c).) For
disclosures covered by both this regulation and Regulation E (such
as the amount of fees for ATM usage, institutions should consult
appendix A to Regulation E for appropriate model clauses.
5. Duplicate disclosures. If a requirement such as a minimum
balance applies to more than one account term (to obtain a bonus and
determine the annual percentage yield, for example), institutions
need not repeat the requirement for each term, as long as it is
clear which terms the requirement applies to.
6. Sample forms. The sample forms (B-4 through B-8) serve a
purpose different from the model clauses. They illustrate ways of
adapting the model clauses to specific accounts. The clauses shown
relate only to the specific transactions described.
B-1 Model Clauses for Account Disclosures
B-1(h) Disclosures Relating to Time Accounts
1. Maturity. The disclosure in Clause (h)(i) stating a specific
date may be used in all cases. The statement describing a time
period is appropriate only when providing disclosures in response to
a consumer's request.
B-2 Model Clauses for Change in Terms
1. General. The second clause, describing a future decrease in
the interest rate and annual percentage yield, applies to fixed-rate
B-4 Sample Form (Multiple Accounts)
1. Rate sheet insert. In the rate sheet insert, the calculations
of the annual percentage yield for the three-month and six-month
certificates are based on 92 days and 181 days respectively. All
calculations in the insert assume daily compounding.
B-6 Sample Form (Tiered-Rate Money Market Account)
1. General. Sample Form B-6 uses Tiering Method A (discussed in
Appendix A and Clause (a)(iv)) to calculate interest. It gives a
narrative description of a tiered-rate account; institutions may use
different formats (for example, a chart similar to the one in Sample
Form B-4), as long as all required information for each tier is
clearly presented. The form does not contain a separate disclosure
of the minimum balance required to obtain the annual percentage
yield; the tiered-rate disclosure provides that information.
By order of the Board of Governors of the Federal Reserve
System, August 2, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-19224 Filed 8-5-94; 8:45 am]
BILLING CODE 6210-01-P