Ally Bank just announced that they will be changing the early withdrawal policy on their CDs starting on December 7, 2013. Found via Ken Tumin’s DepositAccounts post, the details are now officially outlined in the fees tab of their certificates of deposit page. A screenshot:
I have several 5-year Ally CDs earning between 1.8% APY and 3.1% APY, bought largely due to their uniquely short 60-day interest penalty as it meant that I could effectively have access to my funds if required and still earn an interest rate that was higher than anything any other bank CD.
For example, let’s look at their 5-year CD currently paying a 1.60% APY (as of 10/27/13) with no penalty, a penalty of the last 60 days of interest, and a penalty of the last 150 days of interest. Here’s how your actual annualized interest rates would look like based on time of withdrawal:
With the current policy, if you hold it a year and withdraw, your effective yield is already at 1.33% APY – higher than other 12-month term CD that I can find (including being higher than Ally’s 1-year CD). With the future/post-December 7th policy, your effective yield is now 0.93%, now slightly less than Ally’s current 1-year CD yield of 0.98% APY (as of 10/27/13). But also notice that the difference gets smaller the longer you hold. At two years (24 months) the effective yields are 1.47% (60-day) and 1.27% (150-day). 1.27% is still higher than many 2-year CDs. Note that Ally’s 2-Year CD has current rate of 1.05% APY (as of 10/27/13), but it also has a Raise Your Rate feature that lets you bump up your rate once if it increases in the future.
The good news is that this does not affect existing CDs. If you’re looking for FDIC-insured safety, you still have about a month to open an Ally CD with the current early withdrawal penalty. I also have both Ally Bank checking and online savings accounts as my primary bank, due to their free ATM rebates, mobile check deposit, high interest on savings (0.86% APY as of 10/27/13), and free overdraft transfers from savings. But I’ll have to look more closely at other bank CDs once mine mature.