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My bank is going to offer a promotional six-month certificate of deposit (CD) with a specified rate for the first 3 months and a lower specified rate for the last 3 months. Is this CD a stepped-rate account and or a variable rate account?

My bank is going to offer a promotional six-month certificate of deposit (CD) with a specified rate for the first 3 months and a lower specified rate for the last 3 months. For purpose of compliance with Regulation DD’s (Truth in Savings Act) disclosure and advertising provisions, the bank is considering this CD to be a stepped-rate account and not a variable rate account. Is that correct? Also, the bank is having difficulty calculating the composite APY using the formula in the regulation. Do you have any suggested resources to help with this?

Yes, the CD is a stepped-rate account, which is an account that has two or more rates that apply to succeeding periods and are known when the account is opened. (§1030.2(s))A variable-rate account is an account in which the interest rate may change after the consumer opens the account unless the bank provides 30 calendar days advance written notice of a rate decrease. The rate of a variable-rate account may change, but the rate is not known at the time the account is opened. (§1030.2(v))

To calculate the APY, see https://www.ffiec.gov/calculators.htm (July 2020)

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