Dedicated to Deposits: Deals, Data, and Discussion

Update on Ally Bank's CD Early Withdrawal Penalty

POSTED ON BY

Ally Bank

Since my first post on Ally Bank's 60-day early withdrawal penalty, many readers have received conflicting information from Ally's CSRs. The issue is whether there's a possibility that the 60-day early withdrawal penalty can be increased on existing CDs. I decided it was time to seek someone higher up at Ally. I found Travis Parman, Director, Public Relations listed at GMAC's media contacts page, and I sent him an email explaining the conflicting information that we have received. He looked into this issue and replied with the following email. I've highlighted the important sections.

Hi, Ken. Thanks so much for giving us the opportunity to respond to your readers' inquiries about our early withdrawal policy. We did set the 60-day interest penalty to be customer-friendly and to be competitive with other banks. I think the customer representatives your readers spoke to were offering a friendly tip in the spirit of being straightforward. While it's true that at some point the terms could change, customers who had invested in a CD under the 60-day terms would continue to enjoy that benefit until the CD matures. We do not anticipate changing the 60-day terms but that always is dependent on the competitive environment and market conditions. If the terms were to change, customers still would get a 30-day notice of the change to make appropriate decisions regarding future CD purchases. Please let us know if we can follow up with any further questions. We look forward to the dialogue.

Travis Parman
Director, Public Relations
GMAC Financial Services | Ally Bank

In summary, the early withdrawal penalty on an existing CD should not increase during the CD term. An increase in the penalty should only affect new CDs or CDs that have matured and are renewed.

Travis also informed me that they're updating their CSRs on this policy so your future correspondence with the CSRs should confirm this.

With the recent news about GMAC and Ally, readers have asked what would happen if Ally Bank fails. I don't think this is likely, but a failure is possible with any bank. I did not ask Travis this question since once a bank fails, the failed bank no longer has any say. Federal regulations allow a bank that assumes the deposits of the failed bank to make any change to existing CDs. As we've seen many times, this includes rate cuts, and it likely also includes changes to early withdrawal penalties. However, if the assuming bank makes changes, the bank is required to allow a penalty-free early withdrawal.

To see how the small early withdrawal penalty impacts your effective CD rates if you should close the CD early, please refer to my review of Ally Bank's CD and early withdrawal penalty. Please note that the 5-year CD rate has gone down a bit since January.

You can see how this penalty compares with the penalties of other banks in my Survey of CD Early Withdrawal Penalties from Internet Banks.

Ally also offers a 2-year CD that allows a bump-up in the interest rate. I reviewed this CD and compared it with the 5-year CD in this post.


  Tags: Ally Bank, CD rates

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Comments
14 Comments.
Comment #1 by Anonymous posted on
Anonymous
Great info, Banking Guy. Nice to know that if they change the terms that they won't be applied retroactively to CDs that had been opened under different terms. Keep up the good work.

7
Comment #2 by Anonymous posted on
Anonymous
Thank you very much for going to the souce of this matter!

5
Comment #3 by jim (anonymous) posted on
jim
THIS WAS A HUGE CONCERN AS I ALSO RECEIVED SEVERAL DIFFERENT ANSWERS ....SO I CALLED THE FDIC AND THEY SAID THAT WHAT EVER THE "DEPOSITERS AGREEMENT" STATED WAS THE CONTRACT AND IF THEY CHANGED IT TO REFER THE  MATTER TO THEM...ONE  CSR OFFERED TO SEND ME A LETTER STATING THAT ALLY WOULD NOT REFUSE ANY RECQUEST FOR EARLY WITHDRAWAL AND THE 60 DAY PENALTY WOULD NOT CHANGE ON EXISTING CD ACCTS...NEEDLESS TO SAY I NEVER RECEIVED THE LETTER

3
Comment #4 by Anonymous posted on
Anonymous
I agree with Jim (#3) that it would be nice to have this in writing. I think the best we can do is print a copy of this post. I doubt that it's legally binding, but it's worth something.

Thanks again, Ken, for a great job.

1
Comment #5 by Anonymous posted on
Anonymous
Thanks, Ken.  This is really helpful.

To help understand this, if you signed up for Ally's current 5-year rate of 3.09% with $10,000 and then elected to make an early withdraw after 12 months, would you be paid 1 year of interest of $309 ($10,000 x 3.09%) less 60 days of penalty of $51.50 ($10,000 x 3.09% x 2/12) for a net of $257.5 or a return of 2.575%.  If so, this is a great deal!

1
Comment #6 by Anonymous posted on
Anonymous
Ally CSRs were definitely giving wrong information before then. I talked to 5 of them (a couple who went to check with their supervisors), and they all said that if the withdrawal penalty were to change in the future, I would be subject to whatever the withdrawal penalty was at the time of my early withdrawal. Glad to know they were wrong, but dissapointed I didn't open 5 year CDs a couple months ago due to this.

3
Comment #7 by Anonymous posted on
Anonymous
I called Ally today. The CSR checked with a supervisor and was told that the early withdrawal penalty was subject to change on existing CDs, and that a customer would have 30 days to opt out of the new terms. And that opting out would subject the customer to the 60 day early withdrawal penalty, even if the CD were only 2 months old (thus effectively negating any interest earned).

This is in contradiction to the Public Relations Director's statement that "If the terms were to change, customers still would get a 30-day notice of the change to make appropriate decisions regarding future CD purchases."

I hope he's right.

3
Comment #8 by Anonymous posted on
Anonymous
Are there banks other than Ally that have minimal early withdrawal penalities?

1
Comment #9 by Anonymous posted on
Anonymous
Here's what ALLY Customer Care said today:

"Thank you for choosing ALLY Bank. Please be advised that ALLY Bank does reserve the right to delay, discontinue, or make changes to accounts or services which will effect your accounts. You may not get advanced notice of these changes when they are made. This includes changing the penalty on an account when closed early. These rules can be found on page 10 of your deposit agreement book number 34."

1
Comment #10 by EJ (anonymous) posted on
EJ
My biggest concern with Ally's low-penalty 5RY CD is the possibility that Ally could refuse an early withdrawal request.  All the reps I've talked to were only able to say that it has never happened but could provide no other assurance.  More importantly, the deposit agreement doesn't explicitly grant the right of early withdrawal.  My conclusion is that the extra yield isn't worth the risk.

2
Comment #11 by Anonymous posted on
Anonymous
You need to read their latest agreement (dated October 16, 2010).

1
Comment #12 by Anonymous posted on
Anonymous
Today, a member of Ally's Executive Resolution team confirmed that the early withdrawal penalty is as described in the Travis Parman quote above, almost word-for-word.

Indeed, the representative said that they had a scripted response since they were getting questions about the penalty, which raises the question of why that script has not been incorporated into their disclosures...

1
Comment #13 by EJ (anonymous) posted on
EJ
RE #11:

Thanks for the heads up on the new agreement.  It defines a penalty if you close a CD before maturity, but I don't interpret this to mean that Ally will always honor such a request.  It specifically grants Ally the right to close a CD before maturity, but I did not see anything that specifically grants the account holder the same right.  It does specifically grant the account holder the right to close a demand deposit account, which makes the lack of a similar clause for CDs all the more concerning.

I'm not an attorney, but based on the above I believe that Ally has the right to refuse a request to withdraw funds before a CD matures.  Otherwise, why would they be willing to pay more for a 5YR CD that yields more after one year, including penalties, than their 1 YR CD?  The 5YR CD must be more valuable to them in some way.  The only extra value that I see is the option to lock up the funds for 5 years.

2
Comment #14 by Anonymous posted on
Anonymous
I cashed in an Ally 5 year CD and paid the early withdrawal penalty.  Everything went off without a hitch.

2