The Truth in Savings Act requires financial institutions to make certain disclosures about deposit accounts available to consumers. It requires banks to be transparent about the fees they charge and the rates they pay for savings accounts, checking accounts, and other deposit accounts.
Learn more about the Truth in Savings Act and what it means for you.
Definition and Example of Truth in Savings Act
The Truth in Savings Act is a federal measure designed to ensure transparency and truthfulness to consumers when comparing deposit accounts. Deposit accounts covered by the Truth in Savings Act include:
- Savings accounts
- Checking (demand deposit) accounts
- Negotiable order of withdrawal (NOW) accounts
- Money market accounts
- Certificate of deposit (CD) accounts
- Variable-rate accounts
- Accounts denominated in a foreign currency
If you have at least one bank account, you're covered by the Truth in Savings Act. For example, if you have a high-yield savings account at an online bank, the bank is required to provide you with specific information about the account under the act. Or if you open a money market account with a credit union, the credit union would have to make certain details about the account available to you beforehand.
The Truth in Savings Act applies to personal deposit accounts but does not extend to business accounts or commercial bank accounts.
How the Truth in Savings Act Works
The Truth in Savings Act serves a single purpose: to ensure consumers are well-informed when making banking decisions. Specifically, the act requires depository institutions to provide the following information about their deposit accounts to consumers in writing:
- Annual percentage yield (APY) and the period of the time for which the rate will be in effect
- Interest rates, including how the rate is set and whether it's fixed or variable
- Interest compounding and crediting frequency
- Minimum opening deposit requirements and minimum balance requirements, if any
- Transaction limitations for deposits or withdrawals
- Early withdrawal penalties and when they may apply
- Maturity dates for time accounts (such as for CDs)
- CD renewal policies
- Changes to the terms of the account
- Account opening and closing policies
- Any fees that apply and when those are charged
Keep in mind that the FDIC protects your deposit accounts against bank failures, up to a limit of $250,000 per depositor, per account ownership type, per financial institution.
Truth in Savings Act disclosures must be provided before an account is opened or a service is provided, when account terms change, when periodic statements are required, or at the request of the account holder. You can request a paper copy, but your bank may also provide electronic copies as well.
Let’s say you've been looking for a new high-yield savings account to hold your emergency fund. You find an account online that looks promising, so you begin the application. The bank must provide you with an electronic disclosure outlining all the necessary information required by the Truth in Savings Account.
To move ahead with opening the account, you'll need to consent to receive the disclosure electronically and/or acknowledge reading it first.
The act prohibits banks from using misleading tactics when advertising interest rates and APY to new customers.
History of the Truth in Savings Act
The Truth in Savings Act was established as part of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 and is implemented by federal Regulation DD for all depository institutions—except credit unions. Regulation DD should not be confused with Regulation D, which imposes reserve limits on certain deposit accounts.
Part 707 of the National Credit Union Administration (NCUA) Rules and Regulations implements the Truth in Savings Act for credit unions.
The FDICIA was developed in response to the savings and loan crisis of the 1980s. Savings and loans, also referred to as thrifts, were important components of the mortgage market at this time. In 1979, the Federal Reserve Board opted to reduce the money supply, which resulted in a sharp uptick in interest rates.
Increasing rates meant savings and loans had to pay more to savers while still collecting lower rates on fixed-rate mortgage loans. This led the savings and loan industry to rack up collective losses in the billions, with many institutions becoming insolvent. Meanwhile, there was a wide gap between the amounts needed to bring savings and loans back into solvency and the amount available to do so in the thrifts' insurance fund.
The end result was that as the 1980s drew to a close, the federal government realized the savings and loan industry needed a regulatory makeover to avoid a repeat of the crisis. Along with the creation of the Office of Thrift Supervision, the government passed the FDICIA, which brought the Truth in Savings Act into being.
- The Truth In Savings Act requires financial institutions to make certain disclosures about deposit accounts available to consumers.
- If you have at least one bank account, you're covered by the Truth In Savings Act.
- Banks are required to provide Truth In Savings Act disclosures to consumers when opening personal deposit accounts, providing a service, or at the request of the consumer.
- Truth In Savings Act disclosures are required to provide basic information about deposit accounts, including APY and interest rate details, account opening and closing requirements, minimum balance requirements, and fee schedules.