On Oct 8, 11:00*am, Rich Carreiro <rlc-n...[at]rlcarr.com> wrote:
- quote -

Thanks. This is stated even more clearly on page 14. This is exactly
the statement that I remembered and went looking for. Somehow my eyes
glossed right over it. Klunk!

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"Gil Faver" <rowdy'sboss[at]xxyz.com> writes:

- quote -

It's supposed to.

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curiousgeorge408[at]hotmail.com writes:

- quote -

"Certificates of deposit and other deferred interest accounts -- If
you open any of these accounts, interest may be paid at fixed
intervals of 1 year or less during the term of the account. You
generally must include this interest in your income when you
actually receive it or are entitled to receive it without paying a
substantial penalty. The same is true for accounts that mature in
1 year or less and pay interest in a single payment at
maturity. **If interest is deferred for more than 1 year, see
Original Issue Discount (OID), later.**"

and in that OID section:

"If you buy a CD with a maturity of more than 1 year, you must
include in income each year a part of the total interest due and
report it in the same manner as other OID."

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On Oct 7, 12:09*pm, Rich Carreiro <rlc-n...[at]rlcarr.com> wrote:
- quote -

Rich, can you provide a citation -- a reference to an IRS Pub or Form
instructions or something else authoritative?

That's what I thought, too. But when I looked for it earlier, I was
unable to find an assertive statement to that effect.

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"Rich Carreiro" <rlc-news[at]rlcarr.com> wrote in message
news:m3vdw45j9j.fsf[at]swing-shift.time-tripper.com...
- quote -

I didn't know that (obviously). Will a bank or broker (brokered CDs) 1099
accurately reflect that each year??

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On Oct 7, 8:10*am, BreadWithS...[at]fractious.net wrote:
- quote -

Thanks for the confirmation.


- quote -

I have a problem with the word "accrued". Technically, that means (in
this context) interest earned, both paid and unpaid. But in the
vernacular, I worry that some people might use the term to refer only
to paid amounts. I would hope the FDIC web page uses the term
correctly.

The only reason why I am suspicious is because I encountered a
situation some years ago where the bank paid less than principal plus
"accrued" (prorated) interest because the account was closed just a
few days before the next interest payment. The unpaid interest was
not included in the redeemed amount.

(BTW, Reg DD permits this.)

It would make sense to me that the FDIC feels responsible to pay only
the amount in the account, as determined by the __bank's__
procedures. I'm relieved to hear that is not the case, apparently.


- quote -

If the CD is FDIC insured, the bank must follow Reg DD (aka "Truth In
Savings"). The regulation defines the term "APY" to be (only) the
compounded rate. So 3% APY returns 3% on the principal, whether the
interest rate is compounded daily, monthly or not at all.

In contrast, the regulation uses the term "interest rate" to refer to
the nominal annual rate, which may be subject to compounding. So a 3%
"interest rate" compounded daily has a different (higher) yield than a
3% "interest rate" compounded monthly.


- quote -

Reg DD requires only that the APY be advertised. Disclosing the
nominal interest rate in advertisement is optional, but explicitly
permitted by Reg DD.

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On Oct 7, 9:21*am, "123go" <reje...[at]rejcet.ccc> wrote:
- quote -

Good point! Thanks.

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"123go" <rejecto[at]rejcet.ccc> writes:

- quote -

If the CD's term is more than 12 months, interest is taxable (and taxed)
when it accrues, not when it is paid.

To be concrete, if you have a 12mo CD that pays all interest at
maturity that was bought in March 2008 and matures in March 2009,
all the interest will be taxable in 2009.

But if you have a 13mo CD that pays all interest at maturity that
was bought in March 2008 and matures in April 2009, the interest
accrued during 2008 will be taxable in 2008 and the interest accrued
during 2009 will be taxable in 2009, regardless of the fact that all
the interest was paid out in 2009.

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<curiousgeorge408[at]hotmail.com> wrote in message
news:9f4e50e6-1140-4f65-a963-e55714548d78[at]l76g2000hse.googlegroups.com...
- quote -

you may or may not want all the interest lumped into one tax year.

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curiousgeorge408[at]hotmail.com writes:

- quote -

Look over the details - what is the frequency of compounding?
If it "pays monthly", it probably compounds. BankRate has a
calculator for comparing. But it's possible that they
have actually adjusted the APY to account for the compounding
in their advertised interest rate. They should be advertising
*both* a nominal interest rate and an APY. A bond which compounds
monthly and has an APY of 3%, it has a slightly lower nominal
yield. The formula is

APY = (1 + (i_nom/N))^N - 1
i_nom = nominal interest rate
N = number of periods/yr.

And you can go the other way:

i_nom = N * ((APY + 1)^(1/N) -1)

The nominal interest rate which gets you a 3.0 APY is 2.9595%
when you have monthly compounding.

If what you meant by "pays 3% APY monthly" was actually
"pays 3% APY, compounded monthly", there you go. Look
at the fine print.

- quote -

If the APY's the same, it should make no difference.

- quote -

account, dollar-for-dollar, up to the insurance limit, including
principal and any accrued interest through the date of the insured
bank's closing.

- quote -

According to the FDIC, that's right.


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Assuming that I intend to hold a CD until it matures (barring bank
failure), is there any reason for me to care when a CD pays interest?

For example, consider a 1-yr CD "A" that pays 3% APY at maturity v. a
1-yr CD "B" that pays 3% APY monthly. Since both rates are the APY,
not the compounded interest rate,I believe I would earn $300 on
$10,000 in both cases. But with CD "B", I believe the account would
be paid about $25 each month, whereas with CD "A", the entire $300
would b paid at maturity.

Assuming that I hold the CD for the full 12 months, is there any
reason why that should matter to me?

Now, what if the bank fails after 6 months, for example, and the FDIC
pays out the account? Would there be any difference in the amount
that the FDIC pays out?

My broker says that the FDIC would pay the prorated interest plus
principal (up to the limit, of course). So, it would pay $10,000 plus
$150 in both cases, even though no interest had been paid to the
account in the case of CD "A".

Is that right?

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