It's depressing enough to put money in a bank at today's piddling interest rates. But it's worse when you get interest on only a portion of your balance. Until now, some banks were able to whittle away at your interest payments. But as of June 21, the deadline for compliance with the Truth in Savings Act (TISA), banks can no longer get away with that. And they have to make it easier for you to understand how both your interest and your fees are calculated.
Some banks have been taking advantage of deregulation by paying interest on only 88% to 90% of account balances. Their justification: Since they had to set aside 10% to 12% of their funds in reserve, they couldn't invest that part of your savings and make money on it. Other banks based interest for the entire period on the lowest, rather than the average, balance. Still others paid no interest if an account fell below a minimum balance during the period--even if it was for only one day.
TISA not only outlaws such practices but it also requires all banks to calculate interest payments the same way. They must compound the entire account balance daily to produce an annual percentage yield. The APY will make it easier to compare bank rates. "Previously, there was a lot of confusion in the way interest was calculated from bank to bank," says Chris Lewis, director of banking and housing policy at Consumer Federation of America. "That prohibited consumers from comparison shopping."
Banks also have to disclose and itemize all fees, and they can no longer advertise accounts as free unless the accounts have absolutely no regular fees. That would include monthly maintenance charges and minimum-balance requirements, but not incidental costs, such as check purchases and stop-payment charges. Banks can advertise free services such as ATM use and can label accounts free even if limits apply--say, if only nine checks a month are free. But limitations must be clearly stated. Banks also must warn depositors 30 days before they plan to lower rates or otherwise act to the detriment of your savings. This gives you time to shop for an alternative.
SHOP AROUND. Many bankers are unhappy about the new rules. "We think it is quite expensive and cumbersome," says Philip Corwin, a director of the American Bankers Assn. Consumer groups, which pushed for the regs, say the banks are whining. "Our analysis of their own studies shows that their costs are going down while fees are going up three to six times the rate of inflation," says Edmund Mierzwinski, director of the U.S. Public Interest Research Group.
If you want to take advantage of the new regs, shop for a bank by comparing APYs. Go for the highest APY only after you are sure that the fee structure is at least equal between banks with different yields. The Truth in Savings Act may not get you laughing all the way to the bank, but you're more likely to be smiling.