Archives for March 2010

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.