What Is the Truth in Savings Act
The Truth in Savings Act (TISA) is a federal law designed to help promote competition between depository institutions and make it easier for consumers to compare interest rates, fees, and terms associated with savings institutions' deposit accounts.
The Truth in Savings Actwas passed by Congress on December 19, 1991, as part of the Federal Deposit Insurance Corporation (FDIC) Improvement Act of 1991. The act was implemented under Federal Regulation DD.
Key Takeaways
- The Truth in Savings Act is a federal law designed to help promote competition between depository institutions.
- The Truth in Savings Act contains guidelines for how banks disclose information about deposit accounts to individuals.
- The Truth in Savings Act makes it easier for consumers to compare interest rates, fees, and terms associated with deposit accounts.
Understanding the Truth in Savings Act
The Truth in Savings Act established uniform guidelines for how banks and other financial institutions disclose information about deposit accounts to individuals. These disclosures are designed so that consumers can make meaningful comparisons among banks. The act helps consumers to make informed decisions about the accounts offered at depository institutions.
The Truth in Savings Act applies to individuals opening personal accounts. However, the act does not apply to business accounts, corporate accounts, or organizations (such as nonprofits) that open a business deposit account.
What's in the Truth in Savings Act
The intent of the law was to provide consumers with protection and information on the terms of new savings and certificate of deposit accounts they wish to open. Under the law, the financial institution must disclose whether there are fees such as for wire transfers, returned checks, check printing, and stop payment orders. Other key pieces of information that must be disclosed include:
- The interest rate and whether the rate is fixed or variable
- How interest is calculated and when interest begins to accrue
- Minimum balance requirements and balance computation method
- Early withdrawal penalties, if any, and disclosure of the penalty and conditions for when it's assessed
- Changes to the terms of the account
- Maturity date of the account, which is typical for a certificate of deposit (CD)
If an account holder withdraws the interest earned, it impacts the annual percentage yield (APY), which is the rate of return if the interest is reinvested until the term ends. Typically, withdrawing interest creates a lower rate of return since the interest gains are paid periodically instead of being reinvested. As a result, both the interest rate (if interest withdrawals are made) and the APY must be disclosed.
After an account has been opened, the bank must also continue to provide clarity to read communications to its customers. This includes providing customers with regular updates on the amount of interest their accounts should be accruing.
\Furthermore, bank advertising falls under the jurisdiction of the act. This is to ensure that the marketing and ads banks present to the public are not misleading. For example, an account's interest rate and annual percentage yield (APY) must be disclosed in all of its advertising, including billboards, in print publications, online, and other media.
Why the Truth in Savings Act Was Established
The passage of the law came in the wake of the Savings and Loan Crisis, which occurred from the 1980s through the 1990s. The failure of the multitude of savings and loan associations, along with the related losses across the economy led to the introduction of a host of federal regulations and new laws, including the Truth in Savings Act. The purpose of introducing the new statutes was to grant more authority and power to the FDIC in response to the crisis.
The various legislation, including the Truth in Savings Act, was meant to create more transparency for consumers and hold financial institutions accountable with standards of practice that might deter a repeat of the circ*mstances that led to the crisis.
FAQs
TISA was designed to enable consumers to make informed decisions about bank accounts. It requires banks to provide to consumers disclosures about terms and costs of deposit accounts and imposes requirements for deposit account advertisem*nts.
What is an example of a Truth in Savings Act? ›
Examples of such limitations include: • limits on the number of checks that may be written on an account within a given time period, • limits on withdrawals or deposits during the term of a time account, and • limits under Regulation D (Reserve Requirements on Depository Institutions) on the number of withdrawals ...
What does the Truth in Savings Act require your credit union to do? ›
The purpose of Part 707 is to enable credit union members and potential members to make informed decisions about accounts at credit unions. Part 707 requires credit unions to provide disclosures so that members and potential members can make meaningful comparisons among credit unions and depository institutions.
What account is not covered in the Truth and savings Act? ›
The Truth in Savings Act applies to individuals opening personal accounts. However, the act does not apply to business accounts, corporate accounts, or organizations (such as nonprofits) that open a business deposit account.
Which of the following created the Truth in Savings Act? ›
The Truth in Savings Act (TISA) is a United States federal law that was passed on December 19, 1991. It was part of the larger Federal Deposit Insurance Corporation Improvement Act of 1991 and is implemented by Regulation DD.
What is the purpose of the truth in the savings Act? ›
TISA was designed to enable consumers to make informed decisions about bank accounts. It requires banks to provide to consumers disclosures about terms and costs of deposit accounts and imposes requirements for deposit account advertisem*nts.
What are the penalties for using the Truth in Savings Act? ›
Examples of early withdrawal penalties include: a. Monetary penalties, such as “$10.00” or “seven days' interest plus accrued but uncredited interest,” b. Adverse changes to terms such as a lowering of the interest rate, annual percentage yield, or compounding frequency for funds remaining on deposit, and c.
Will my money be safe in a credit union? ›
All deposits at federally insured credit unions are protected by the National Credit Union Share Insurance Fund, with deposits insured up to at least $250,000 per individual depositor. Credit union members have never lost a penny of insured savings at a federally insured credit union.
What is the Truth in Savings Act quizlet? ›
The act requires the disclosure of all fees imposed during the statement period in connection with the account on any periodic statement. This is the only true statement. TISA does not prescribe a particular frequency of compounding interest, nor does it mandate that periodic statements be sent.
What is the penalty for early withdrawal from Truth in savings? ›
Early Withdrawal Penalty: Any withdrawal prior to the maturity date will result in a penalty of 180 days worth of interest. A withdrawal will reduce earnings. Transaction Limitations: After the Certificate of Deposit is established, you may not make additional deposits to the account until maturity.
The Truth in Savings Act, as part of the Federal Deposit Insurance Corporation Improvement Act of 1991, was signed into law by President George H.W. Bush (R) on December 19, 1991. The act requires financial institutions to disclose to consumers the annual percentage yield on savings accounts.
How does the truth in the savings act of 1993 help Janelle compare the products across the banks she is researching? ›
The Truth-in-Savings Act, enacted in 1993, requires banks to clearly disclose interest rates on both checking and savings accounts. This transparency allows consumers like Janelle to compare various bank products more effectively by understanding the terms and potential earnings from each account.
Which of the following is not a benefit of a savings account? ›
A savings account does not offer the benefit of regular and unlimited withdrawals to the account holder like a current account. There are federal restrictions that limit the number of times an individual or a company can withdraw money.
What is the Truth in Savings Act Part 707? ›
The NCUA's rule can be found at 12 CFR Part 707. The regulation also includes requirements on the payment of interest, the methods of calculating the balance on which interest is paid, the calculation of the annual-percentage yield, and advertising.
What types of accounts are covered by TISA? ›
What Types Of Accounts Does The Truth In Savings Act Cover? As mentioned above, there are numerous accounts covered by TISA, including all consumer deposit accounts. Consumer deposit accounts include savings accounts, checking accounts, certificate of deposit (“CD”) accounts, and money market deposit accounts.
What is the Truth in Lending Act primarily designed to protect? ›
Share This Page: The Truth in Lending Act (TILA) protects you against inaccurate and unfair credit billing and credit card practices. It requires lenders to provide you with loan cost information so that you can comparison shop for certain types of loans.
What accounts are covered under TISA? ›
What Types Of Accounts Does The Truth In Savings Act Cover? As mentioned above, there are numerous accounts covered by TISA, including all consumer deposit accounts. Consumer deposit accounts include savings accounts, checking accounts, certificate of deposit (“CD”) accounts, and money market deposit accounts.
