Isn’t advertising CDs for terms of less than a year, (6 months @ 5.10% APY) deceptive advertising? I was told by an APPLE Bank rep that the federal government requires them to do so, instead of quoting the real interest rate for the length of the CD. Is that true, and if so, whatever happened to “Truth in Advertising”?
Answers
I imagine 15 Months Deposit Contract is even more notoriously deceptive unless it is presented as APY+APR.
It is the percentages to be blamed... and federal government. Radically, everything must be advertised as a fraction of cent earn on every dollar Invested/Deposited... for the benefit of the People spending more time in front of the Calculator.
I remember a short time after I started at the bank a few years before my oldest started college in 1980 I typed up a $100,000 CD for 15 years at 15% in the 80's for a customer. My boss then explained compounding to me and how much that person would really be making. Example having $100,000 with a rate and yield both at 5% meaning no compounding during the year after 5 years those earnings would be $27,628.16. If you earned 5% for one year it would be $5,000, so by purchasing a long term CD for the same amount of interest you would make $2,628 more if you let it compound. By leaving the interest in the CD and letting it compound it earns even more. This is compounding for 5 years and this is the difference between the rate and yield. $100,000 for 1 year is $5,000 per year totaling $25,000 if you took the interest out each year and for 5 years if you left in in the CD to compound you would earn $27,628. You can use a compounding calculator for your 15 month CD with the APY that you would be using to find the interest earned with the APY much easier. Previously having just the rate the people selling the CD to you would have to figure out for each customer with each term of CD's for the amount of money they would make on different terms. Made it worse because each CD sometimes were compounded differently. With the yield it makes it much easier to compare. With that $100,000 at 15% for 15 years compounded that family made $713,706.16 in interest only leaving it compound and add that to their original $100,000 because the family did not take yearly interest. If they had taken yearly interest of $15,000 each year that would have taken on a total of $225,000. These numbers are exaggerated because of the amount of and time. But this is an example. APY makes it easier to compare CD's. Also look up the rule of 72 in your browser or use a rule of 72 calculator.
Go to calculatorsoup.com and scroll down to financial.
Indeed. It's simply a common unit for comparison.
The average CD buyer might not be as astute as are the contributors to this blog. Listing both the APR & the APY would be of great benefit to everyone in helping them make an informed purchasing decision. This would also live up to the spirit of the phrase “Truth in Advertising”, whether you use false, deceptive or any other adjective!
So the mile is simply the unit to compare distance and dollar is the common unit to compare wealth!
There, the Year is simply a common unit to compare intellect and comprehension.
Never mind the mile, the dollar and the year are measurements units, where the yield is the unit to measure investment performance.
In GreenDream it's simply to compare APYs, however where Green is Awake common APYs are equal to different dollar values.
@melsher14 made valid though imperfect argument about subjectivity of APY while the "Truth" must be Objective and Free from GreenDreaming.
Unfortunately, APR alone would be much worse, and the combination of APR and APY would render 90% of Dreams comatose and incapacitated
Thanks for the very informative reply.
It made my day. I had opened a 7 year CD at the end of last year at 4.99 APY. Now I realize I will earn much more than my calculations (I do not withdraw any interest earned) thanks to your explanation of APY and compounding.