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Safety Of Ally Financial Demand Notes? Alternative To Money Market Funds?

Thursday, September 20, 2012 - 2:57 PM
Ally Financial is offering a similar type of uninsured liquid account that GE and Ford have been offering. Like GE Interest Plus Corporate notes and like the Ford Interest Advantage, Ally Financial Demand Notes function like a money market fund with check writing. All 3 of these are debt obligations of the company. So they should be considered to have more risk than money market funds. The risk is more inline with a short-term bond. Just like a bond, there's always a default risk if the company has major problems (like what happened to Enron and Lehman Brothers).

One advantage of Ally over other companies that offer these demand notes is a higher yield. Ally Financial Demand Notes now pay 2.00% APY (as of 9/20/2012).

Here's the website link to Ally Financial Demand Notes

Qualifications - Not everyone is eligible to purchase these demand notes. According to Ally's FAQs:
Demand Notes are available to all employees and retirees of Ally/GM/GMAC/Chrysler and their subsidiaries, as well as their immediate family members (spouse, children, parents, siblings, and grandparents of the employee or retiree); GM and Chrysler dealers and their employees; and GM and Chrysler stockholders and suppliers.

If you really want these, it appears you could just buy 1 share of stock from either GM or Chrysler.

Remember, these are NOT FDIC insured. Here's what is stated at Ally's website:
Demand Notes is an unsecured debt obligation of Ally Financial. It is neither a money market fund nor a bank account and is not FDIC insured.

It should also be noted that Ally Financial failed the Federal Reserve ‘stress test’ (see article). If a company goes bankrupt, the demand notes can become worthless

Thanks to the reader who mentioned these Demand Notes in the comments.

Here are the website links and links to my short reviews of other demand notes:
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Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
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