Ally Bank CDs Offer Protection From Rising Interest Rates?

Ally Bank has been making several customer-friendly tweaks to their product line which are worthy of note. First up are two that give you a way to lock in a higher rate, but with a handy exit plan in case rates start rising due to inflation or other governmental intervention.

60-day Early Withdrawal Penalties
The usual deal for a certificate of deposit (CD) is that you agree to keep your money at a bank for a fixed length of time, and the bank agrees to give you a higher interest rate in return since it allows them to lend more easily. Of course, the purchaser is hoping that rates don’t rise a lot after already being locked in.

If you break that agreement, you get hit with a hefty penalty. It is not uncommon for some banks to take half of all your interest accrued if you “break” the CD. On a 2-year CD you’d lose a year’s worth of interest. On a 4-year CD, 2 years of lost interest. But Ally CDs now have only a 60-day interest penalty for breaking their CDs, from 6 months all the way up to 5 years! (See the Fees tab.)

Since the early withdrawal penalty is so short, you can run some scenarios where you earn the 5-year CD unless rates rise significantly and you can then simply break the CD, pay the penalty, and yet still come out ahead versus going with a shorter CD. The actual break-even requirements depend on how long you’ve held the CD and how high rates go. The longer that rates stay relatively low, the more “ahead” you’ll be since you’ve been earning that higher interest for a while.

2-Year CD with One-Time Rate Bump Another new product is their Raise Your Rate CD. If rates rise, you can have your rate bumped up to whatever the current 2-year CD rate is, any time during your 2-year term. This is nice because you are essentially paying no early closure penalty at all, and you don’t have to re-commit to another 2-year term.

Finally, a few extra small-but-handy details. All Ally CDs can be opened with $5 or $50,000 as they have no minimums. They also offer a 10-day guarantee that you won’t fund your CD only to miss out on a rate hike, or to have your rate drop if your paperwork takes too long to process:

With our Ally Ten Day Best Rate Guarantee, when you fund your CD within ten days of opening or when your Ally CD renews, you automatically get the best rate we offer during those ten days. Most banks offer only one rate—the one you get the day you fund.

Comments

  1. My only concern with the 5 year CD option is whether they must honor your request to terminate the CD early. It seems with some banks the terms say that they may choose not to allow it. Is that the case with Ally?

  2. I have the 9 month flexible CD with Ally and it is about to mature. I got an email from Ally saying that if I keep my money in the cd or roll it over to ANY of their cd products, I will get that rate PLUS an addition .5% for my customer loyalty! Now I am thinking of putting it into the one year cd to get 2.54% or the five year to get 3.65% (unheard of these days). I gotta believe that they are doing this for everyone who has a maturing cd with them.

  3. Thanks for the heads-up. I hadn’t looked into them, but they have a really nice web presence (key) and better APR than my other two “high interest” savings accounts. I’ll probably put some money in there, even if not in a CD.

  4. I just did the 5 year with .5% “loyalty bonus” for rolling over my previous Ally CDs. Great deal!

  5. Also have a CD w/ them about to mature, but the email I got “only” offered a 0.25% bump to any new CD – this still puts their rates above and beyond the competition. Wonder what their criteria are for this.

  6. Here’s a rough equation to calculate your break-even point (versus a savings account) if you withdraw the money early. (rough because it doesn’t calculate compound interest).

    x=2c/(c-s)

    x=how many months to break even
    c = CD rate (APY)
    s = savings account rate

    To be a little more accurate, you can use the CD APY on top and the CD rate on the bottom, but the difference is only a few days. (x=2*(CD APY)/(CD RATE)-s)

  7. I have worked with a lot of long term CD’s, they cannot refuse to let you cash the CD out but there are a good portion who can refuse to give you the interest payout. Its all in the terms. Never put money into anything you can’t backward and forward.

  8. Frankie says:

    I also got the .5% email as my 9 month no penalty CD’s come due this month. However where are people getting 2.54% from for a 1 year? Their 1 year is 1.58%, so it would be 2.08% with the bonus. Here are their current rates w/o the bonus:

    Term APY
    3 months 0.89%
    6 months 1.19%
    9 months 0.98% (No penalty withdrawal)
    12 months 1.58%
    18 months 1.73%
    2 years 2.04% (Raise your rate)
    3 years 2.49%
    4 years 2.74%
    5 years 3.15%

  9. Frankie says:

    According to Jeremy’s equation, you would have to stay in a 5 year 3.65% for 4.4 months to break even vs a 2.0% savings account (Alliant).

  10. Does it matter that Ally’s holding company is GMAC? Does Ally get affected if GMAC gets hit with bad loans?

  11. Frankie, I think their rates have dropped in the last 48 hours (figures)…that’s why my posting was different. My cd came due yesterday…still debating which product to put it into.

  12. I noticed with my newer ALLy cd’s the intrest is accrued and not credited til maturity ,does breaking that CD forfeit accrued intrest that has not been credited and 60 days ?or just the 60 days ?

  13. Frankie says:

    I called and talked to them and they said just the 60 days. The way the CD’s accrue interest does seem to have changed.

    I can’t roll mine over until the 9th, so if the rates stay high I’m going to try the 5 year, and I’ll be sure to double check on this question.

  14. To confirm Frankie’s post and expand on the answer to Bill’s question. I also just talked to them and interest is apparently only credited to the account every year on the anniversary for CD’s longer than 18 months. However, in the case of early closure, all accrued interest will be credited up to the last day it was compounded before you “cancel”, then the 60 day fee will be taken out (of course), then it will be disbursed.

  15. Am I missing something, or as long as if you plan to keep your money in for at least a few months, the 5 year cd is by far the best. If you only lose 2 month’s money, and for example only wanted to keep it in for a year, getting 10/12 of 3.1% interest is a lot better than 1.57% interest. On top of that, you can think of it as a no-penalty cd (as long as you keep it a few months).

  16. Frankie says:

    No Mitch you aren’t missing anything, we are all getting in on the 5 year CD at 3.60% (with the .5% add on bonus).

  17. I just called to switch to the Ally 5 year CD upon the maturity of my 9 month no penalty CD. The rep made sure to inform me that the 60 day interest penalty is subject to change, though I will be notified in advance. This concerns me, but she did also mention that it recently went down from 180 days to 60. Do you folks think the penalty will remain low or will they likely jack it back up?

  18. I have no idea if they will jack it up, but with the 5 year rate dropping every day the breakeven is getting pushed out. When I first did the calculation the 5 year CD with .5% bonus would breakeven vs. a 2.0% savings account (Alliant) in 4.4 months if the penalty was 60 days. Now the CD has dropped a bit and it will take 5.6 months to breakeven with 60 day penalty. If the penalty moves back to 180 days, then the breakeven is 13.5 months.

    Hopefully Ally will give us the heads up if the penalty changes to 180 days, and let us break the CD under the 60 day rule before it moves to 180.

  19. I’m looking at a “Flex CD” at homestreet.com, which allows you to withdraw money without penalty at stated intervals during the two or three year term. It looks to me like HomeStreet Bank is troubled, and I wouldn’t be surprised to see an FDIC takeover sometime. My question is this: In the case where another bank takes over HomeStreet’s assets, is it absolutely clear that they must honor the special withdrawal terms of the Flex CD (or at minimum, return your money without penalty?) I’ve tried to research this at fdic.gov, and I can’t get a clear answer.

  20. It’s a scam if they can jack the penalty duration back up…

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