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Ally Bank Payback Time Promotion: 1% Additional Cash Bonus (~6% APY 3-month CD)

Ally Bank has a new promotion called Ally Payback Time that is offering a 1% cash bonus (up to $1,000) on new deposits on top of their existing interest rates. Valid for both new and existing customers. Given the holding period, this roughly equates to the same total interest paid as a 3-month bank CD at 6% APY. Here’s how it works:

  • Enroll by 10/21/18 at ally.com/payback. You must enroll or you won’t get the bonus. Existing customers must enroll with the same e-mail as linked to their Ally bank account.
  • Fund account by 10/31/18. This means your account has to be approved, opened and funded by this date. Technically the terms state that the funds must arrive by 11/5/18, but that is likely just a grace period and you should initiate any fund transfers by 10/31/18.
  • Maintain funds through 1/15/19. You must keep your new funds there through 1/15/19. This is really only a 2.5 month period if you waited until the last moment. Withdrawals may lower your bonus.
  • Get cash bonus on 2/15/19. After another 30 days, they will deposit your cash bonus into your Ally account.

To be clear, the bonus applies to new funds added to an eligible Ally bank account, not your total balance. Eligible accounts include Ally Online Savings, Money Market, Interest Checking, and CD accounts.

Rough math. The current rate on the Ally Online Savings account is 1.90% APY, and the 11-month No Penalty CD is 2.10% APY on $25k+ balances (as of 10/15/18). Given that you can an additional 1% bonus in a bit under 3 months, the bonus itself works out to the equivalent of a 4% annualized yield. 2% plus 4% = 6%, so you’re looking at the equivalent of a 3-month CD at 6% APY for new money deposits between $1,000 and $100,000. At such a high yield, this promo is a “no-brainer” when compared to other liquid savings accounts for the next 3 months.

The promo page has a calculator to show you your total cash earned over a year. If you move over $10,000 at 1.90% APY, you’d get $190 of interest in a year plus a $100 bonus = $290 total. That would work out to a total of 2.9% APY if you were lazy and just kept it all there for a year. Still not too shabby.

Should I move money out of Ally and back in to qualify? No, it won’t make any difference as Ally has already thought of that. All new funds added after 10/8/18 will count as new money for this promotion. They’ve already set the start date in the past, so you gain nothing by delaying your enrollment.

Existing customers. As a longtime Ally accountholder, I’m happy to see that this offer includes existing customers, even if it has to be new money. The promotion should be called the “Ally Money Comeback Time” as lots of people are probably bringing back funds that in the past year or so.

Payback Time? This YouTube ad explains the meaning behind “Payback Time”, basically the megabanks pay you no interest and keep it for themselves:

Bottom line. Ally Bank has a new promotion to attract new money (or bring back old money). You get a 1% cash bonus (up to $1,000) on new deposits on top of their existing interest rates. For their savings account, this works out to a 3-month holding period paying roughly 6% annualized interest. You must enroll soon by 10/21 and your account must be opened and fully funded by 11/5/18 at the very latest.

Savings I Bonds November 2018 Interest Rate: 2.32% Inflation Rate

sb_posterSavings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2018 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2018 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. March 2018 CPI-U was 249.554. September 2018 CPI-U was 252.439, for a semi-annual increase of 1.16%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.32%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2018. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.30%. You will be guaranteed a total interest rate of 2.52% for the next 6 months (0.30 + 2.22). For the 6 months after that, the total rate will be 0.30 + 2.32 = 2.62%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2018 and sell on April 1, 2019, you’ll earn a ~2.09% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~2.20% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of October 2018.

Buying in November 2018. If you buy in November 2018, you will get 2.22% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS, which has been rising a bit. The current real yield of 5-year TIPS now about ~1.00%. My best guess is that it will be 0.50% or 0.60%. Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will not beat a top 12-month CD rate if bought in October, and probably won’t if bought in November unless inflation skyrockets. Thus, I probably wouldn’t buy in October. I haven’t bought any savings bonds yet this year, and will wait until November to see what the new fixed rate will be. If it greatly lags the real yield on short-term TIPS, then I will probably just buy TIPS instead. However, if it is close, I will probably buy some savings bonds as a long-term investment given the unique benefits below.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

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