The Truth in Savings Act

Certificates of deposits (CDs) are considered to be great and relatively safe investments for the beginning investor because CDs are easy to purchase through your bank or credit union. Plus, they are insured by the federal government. In uncertain times, CDs are a good way to make sure your money is secure.

One thing that makes CDs such a great choice for the average consumer is that they are protected under The Truth in Savings Act. The Truth in Savings Act (also known by the acronym TISA) is a federal law that was passed in 1991, which requires clear and thorough disclosure of terms and conditions about interest rates and fees when purchasing a CD. Any time you open any sort of account, such as a certificate of deposit, the bank is required to disclose the interest rates, annual percentage yield, and fees associated with the account in a clear and uniform format. This allows you, the consumer, to make a true apples-to-apples comparison between potential investments and assess which account will give you the best CD rates.

For example, if you were to open a certificate of deposit account, the Truth in Savings Act compels the bank to supply you with information not only about your interest rates, but also about “ladder rates” (how the CD you are considering compares against other CD rates they offer for longer or shorter terms), and any penalty fees you might incur by withdrawing a portion of the funds, or all of the funds. The Act also stipulates that the institution must credit your entire deposit when calculating interest, rather than using a “low balance per month” method.

The Truth in Savings Act is only applicable to deposit accounts that are held by what’s called a “natural person.” This doesn’t mean you suddenly have to start eating vegan and using crystal deodorant – it just means that for purposes of the act, your account must be owned by an individual, not an organization such as a business, church or association.

The Truth in Savings Act is intended to allow bank customers to make informed decisions, encourage competition between financial institutions, and promote economic stability overall.