eBenefits Articles - Making Cents of APY and Certificates of Deposit

Ever since the Truth In Savings Act (TISA) there has been confusion among many regarding the calculation of Annual Percentage Yield (APY) on certificates. Some common questions can be easily cleared up:

1. The rate disclosed on the statement doesn't agree with the APY that was advertised. Shouldn't these two rates agree?
   
   Not necessarily. APY is a prediction, calculated based on the assumption that you don't withdraw any funds, this allows the dividends to remain in the certificate. If the you have your dividends transferred out of the certificate automatically (by choice), the dividends won't compound the way the APY calculation assumes they will. For example, if your monthly dividend rate is 1.195% and your APY is 1.200% and you elect to have the dividends transferred out to your savings the APY will be 1.195%. If you elect to have your dividends remain in your certificate your interest will compound and the APY will be 1.200% annually.
   
   
2. Why is the APY used to advertise Certificate of Deposit dividend rates?
   
   The purpose of the APY is to allow you to easily compare certificates with different terms, and compounding monthly is a much better deal for you when the dividend rates and terms agree. All of USU Charter Credit Union’s Certificates of Deposit compound monthly.
   
   
3. What is required to have a Certificate of Deposit with the Credit Union?
   
   Savings certificates require a minimum opening balance of $500.00. A $25.00 membership share is required. Your options include 3 month, 6 month, 1 year, 2 year or 3 year certificates. There is also the option of having our 4 or 5 year one-time rate “bump” certificates.
   
   
4. What is USU Charter Credit Union’s 4 and 5 year certificate bump rate option?
   
   Share certificates with a 4 or 5 year maturity have a one-time interest rate “bump” option. You can notify the Credit Union anytime during the original term of the certificate to adjust the rate to the 4 or 5 year certificate rate in effect on the date of the notification. Only one rate “bump” is allowed during the term of the original certificate. It is your responsibility to notify the Credit Union on the business day you want the rate “bump” to take effect and to notify the Credit Union immediately if the “bump” rate does not appear on your next Credit Union account statement. Only certificates on or after October 1, 2003 are eligible for the “bump” rate option.