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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Updated Comparison of Ally and iGObanking Long-Term CDs

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Updated Comparison of Ally and iGObanking Long-Term CDs

Update 8/11/2011: iGObanking's CD rates plummeted today. The 10-year CD now has a 2.00% APY and the 7-year CD has a 1.50% APY.

With yesterday's news from the Fed and with the recent CD rate cuts, I thought it would be a good time to update the comparison between iGObanking and Ally Bank long-term CD rates. Ally Bank's 5-year CD just had another rate cut. As of 8/10/2011, it has an APY of 2.27%. Last Friday, iGObanking.com cut its 7-year and 10-year CD rates by 25 basis points. They're now 2.75% APY and 3.25% APY respectively. Based on yesterday's news, I wouldn't be surprised to see these rates continue to fall.

There are some CDs with higher rates than the long-term CDs at Ally Bank and iGObanking, but few have reasonable early withdrawal penalties. For example, the highest 10-year CD APY that's nationally available is 3.50% at Apple Federal Credit Union (as of 8/10/2011). However, as I described in my Apple FCU CD review, the early withdrawal penalty is up to 3 years of interest.

For 5-year CD rates, the highest CD APY that's nationally available is 3.00% at Connexus Credit Union (as of 8/10/2011). As I described in my Connexus CD review, the early withdrawal penalty is one year of interest. In addition, it requires an active checking account.

The best nationally available 5-year CD that combines a high rate and a reasonable early withdrawal penalty is at University Federal Credit Union. Its 5-year Web CD has a 2.83% APY (as of 8/10/2011), and the early withdrawal penalty is 6 months of interest. I have more details about this CD and membership into the credit union in my University FCU CD review.

So for the best rates and the smallest early withdrawal penalties, Ally Bank and iGObanking.com are still on top. According to Ally Bank's disclosure, the early withdrawal penalty is 60 days of interest, and according to iGObanking's disclosure it's early withdrawal penalty on CDs with terms of one year or greater is six months simple interest on the amount withdrawn.

I have more details about these CDs in this Ally Bank CD review and in this iGObanking CD review. Allan Roth has some additional info on these CDs in his article, Safe CD To Stash Your Cash.

We have long discussed the risks of banks and credit unions making it difficult or costly to use the early withdrawal option. I have investigated if Ally Bank could increase the EWP on existing CDs, and I have received assurance from Ally Bank's public relations director that Ally would not change the early withdrawal penalty on existing CDs (see post). Some have warned iGObanking's disclosure gives them the right to increase the EWP on existing CDs. I have not yet investigated this risk.

There may be some risks with this long-term CD early-withdrawal strategy, but as we saw yesterday, there's also the risk that rates will stay very low for a long time.

To help you make the trade-off analysis, I updated the early withdrawal yield table with Ally's and iGObanking's CDs. I compared iGObanking's 7-year and 10-year CDs with Ally's 5-year CD. I listed the effective yields when the CDs are closed early for each year after account opening. The yields take into account the early withdrawal penalties. As you can see, Ally Bank's 5-year CD only has the best rate at year 1. After the first year iGObanking's 10-year CD still has the lead.

The early withdrawal yields listed below are based on the spreadsheet developed by Bogleheads forum members. It's available from the Bogleheads Wiki: Comparing CDs. It should be noted that the following simple formula comes very close to this spreadsheet:

Post Penalty APY = (Full APY) x (D - P) / D

D = days into term when the CD was closed.
P = days of the early withdrawal penalty

These CD rates are based on the rates listed at the institutions' websites as of 8/10/2011:

Approximate Yields After Early Withdrawal Penalties

Year of Early Withdrawal iGObanking's 10-yr 3.25% CD iGObanking's 7-yr 2.75% CD Ally's 5-yr 2.27% CD
Early Withdrawal Penalty 6 months 6 months 2 months
year 1 1.61% 1.37% 1.89%
year 2 2.43% 2.06% 2.08%
year 3 2.70% 2.29% 2.14%
year 4 2.84% 2.40% 2.17%
year 5 2.92% 2.47% 2.27% (no penalty)
year 6 2.98% 2.52% n/a
year 7 3.01% 2.75% (no penalty) n/a
year 8 3.04% n/a n/a
year 9 3.07% n/a n/a
year 10 3.25% (no penalty) n/a n/a

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To search for nationwide CD rates and CD rates in your state, please refer to the best CD rates section of DepositAccounts.com.


  Tags: Ally Bank, iGObanking, CD rates

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Comments
13 Comments.
Comment #1 by Anonymous posted on
Anonymous
Ally's rate was 2.30 yesterday morning.  2.28 in the afternoon and 2.27 this morning.  Drop, Drop, Drop....

4
Comment #2 by Anonymous posted on
Anonymous
Ally has a 7-day best rate guarantee, so you should be able to still get the 2.30%

1
Comment #3 by Anonymous posted on
Anonymous
The guarantee starts when you open it.  It doesn't look back.

7
Comment #4 by Anonymous posted on
Anonymous
Bummer

1
Comment #5 by palmer chimay 2xs bummer (anonymous) posted on
palmer chimay 2xs bummer
ditto

1
Comment #6 by mike (anonymous) posted on
mike
"I have received assurance from Ally Bank's public relations director that Ally would not change the early withdrawal penalty on existing CDs"

These are meaningless words.  The PR director doesn't make those decisions, and if the penalty changes, the PR director's role will be to explain the reason for the change.  Just as it's currently their role to explain that they won't change the penalty.  But unless it's spelled out in a binding legal document, it doesn't hold water and people shouldn't be making investment decisions based on PR fluff.

It would be helpfully responsible for the author to make this more clear in this post and other posts on the topic instead of giving people false assurances.

7
Comment #7 by George (anonymous) posted on
George
You're absolutely right, Mike.  It's exceedingly dangerous to state or even imply that the current penalty status of any bank or credit union or s&l will project in a parallel manner into any time frame in the future. 

Unless the document states explicity that it won't be altered or, preferably, if the Fed or FDIC for banks and the NCUA for the credit unions, would issue a statement that such a move is prohibited, the only safe course would be to assume that they, the banks or the credit unions can change their penalty structure to anything they want. 

A prime example is what Ft Knox has implemented.  Has the the NCUA issued a definitive statement yet?

Don't trust the banks or the credit unions.  Remember, it's always the little guy who gets the ****ing.  All we need to do is reflect on their behavior of three and four years ago.  Trusting them is akin to trusting Obama and his administration.

3
Comment #8 by Anonymous posted on
Anonymous
iGObanking 10 yr CD is now 2.0% APY. Not a well-managed outfit to plunge the rate so dramatically in a couple of weeks.

1
Comment #9 by Ed (anonymous) posted on
Ed
Igo Bank lowered their CD rates significantly this morning---see below. I was told they will honor prior rates for accounts already opened online as long as they are funded within 14 business days of the date opened.

 
iGOcds 3 Month CD 0.25 0.25 $1000
  6 Month CD 0.25 0.25 $1000
  8 Month CD 0.25 0.25 $1000
  9 month CD 0.25 0.25 $1000
  12 Month CD 0.25 0.25 $1000
  13 month CD 0.25 0.25 $1000
  15 month CD 0.25 0.25 $1000
  18 month CD 0.25 0.25 $1000
  24 month CD 1.24 1.25 $1000
  29 Month CD 1.29 1.30 $1000
  36 month CD 1.49 1.50 $1000
  48 month CD 1.69 1.70 $1000
  60 month CD 2.23 2.25 $1000
  7 Year CD 1.49 1.50 $1000
  10 Year CD 1.98 2.00 $1000

1
Comment #10 by Jo (anonymous) posted on
Jo
I have a 36-month CD at 2.09. Since I am always strapped for cash due to my debt load, I can add to this over the course of time. It's set on automatic - pay myself first - with each weekly paycheck.

Going through UPromise's shopping portal since I buy needs only items, I use the small bonuses to add to the balance.

This isn't the best way to invest, but for me it's a start. This alert feature will help tremendously. Thanks for all your hard work, Ken.

1
Comment #11 by Jo (anonymous) posted on
Jo
Whoops! I forgot to mention with which of the financial institutions....Sallie Mae.

1
Comment #12 by LisaPA (anonymous) posted on
LisaPA
Glad I was able to get in on the 3.5% while the getting was good. Thanks, Ken.

 

1
Comment #13 by Anonymous posted on
Anonymous
Note that the banks do not readily disclose how frequently interest is credited.  I opened CDs at both banks in 2010.  iGo credits interest monthly, while Ally credits it annually.  That means the effective early witdrawal penalty for iGo ranges from 6-7 months (average 6.5), while for Ally it ranges from 2 to 14 months (average 8 months).  That difference can significantly affect the effective yield for early withdrawals at the wrong times.

1