Ally Hikes No Penalty CD To Rate-Leading Status Amid U.S. Banking Crisis

The bank run and subsequent closure of Silicon Valley Bank last week may have sparked fear at Ally Bank. On Saturday, Ally Bank did something very unusual. It did a weekend rate hike, increasing the rate of one of its savings products to a rate-leading level. With Ally being listed as one of ten banks “that may face trouble” in the press, I think this might have been one action done by Ally Bank to reduce outflows of deposits from skittish customers. The latest news on Sunday night may help calm fears of more bank runs. The government announced that all uninsured depositors at Silicon Valley Bank will be made whole. The Fed also announced “it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.” (I’ll have more on this news later.) Due to these Sunday announcements, Ally Bank may not keep this latest deal for too long.

The unusual rate hike this weekend was the 75-bp rate increase of Ally’s 11-month No Penalty CD. The 11-month No Penalty CD now has a 4.75% APY. The media may not notice this rate as unusual since many online banks now offer 12-month standard CDs with a 5.00% APY. That may be one reason Ally chose the big rate hike on the No Penalty CD. Also, the No Penalty CD rate increase doesn’t automatically raise Ally’s deposit costs on existing accounts. When the savings or money market rates increase, existing account holders immediately get the benefit. Only Ally customers who open the No Penalty CDs will benefit (or who have recently opened a No Penalty CD.) This minimizes Ally’s deposit costs. The high-rate No Penalty CD may help keep more deposits at Ally, but Ally may not need to be so aggressive with deposit rates after the Sunday announcements from the Feds. As I mentioned above, this 4.75% APY on the No Penalty CD may not last long if the Fed’s actions on Sunday reduces deposit outflows.

Thanks to DA readers mnysvr and slowboat for posting on the No Penalty CD rate hike in the DA Forum.

On Friday, before the closure of Silicon Valley Bank, Ally Bank did a few smaller rate increases.

Both the Online Savings Account (OSA) and Money Market Account (MMA) had rate hikes, but the MMA rate had a larger increase, and it now exceeds the OSA rate by 20 bps. The OSA rate increased 20 bps to 3.60% APY, and the MMA rate increased 30 bps to 3.80% APY.

I’m disappointed that Ally has chosen to widen the rate gap between the OSA and the MMA. The only reason that I see for the MMA rate to be 20 bps higher than the OSA rate is that it might be saving Ally on deposit costs. Many more customer deposits are probably in the OSA than in the MMA. Many customers may not quickly move their money into a MMA, and that will save Ally money. Also, the MMA isn’t available inside of an Ally IRA. The OSA is the only liquid account available in the Ally IRA. The only reason I could see Ally justifying the higher rate on the MMA is due to the new savings features on the OSA such as the boosters and buckets. However, these should be less costly for Ally compared to the checks and debit card available on the MMA.

Ally Bank also increased rates on Friday on a few of its CDs.

Ally Bank increased the rate of its 20-month Select CD by 65 bps to 5.00% APY, which now matches Ally’s 18-month High Yield CD rate. For those looking for long-term 5% CDs, this isn't long enough. Nevertheless, it's a step in the right direction.

Ally Bank increased its 12-month High Yield CD rate by 25 bps to 4.50% APY and its 9-month High Yield CD rate by 65 bps to 4.15% APY. With the 11-month No Penalty CD at 4.75% APY, this is the only time that I remember when Ally’s No Penalty CD rate was higher than its 12-month CD rate. It’s nice to see Ally’s 9-month CD rate being competitive. Ally has a long history of keeping the rates of its short-term CDs (under one year) uncompetitive. Of course, with the No Penalty CD rate at 4.75%. The only reason to choose this 9-month CD over the No Penalty CD is if you have an Ally IRA since Ally doesn’t offer the No Penalty CD in an IRA.

Lastly, Ally Bank increased the rate of its two Raise Your Rate (RYR) CDs by 45 bps to 3.75% APY. Both the 2-year and 4-year RYR CDs now have a 3.75% APY. It’s nice to see a big increase on these RYR CDs, but they’re still too low when compared to standard 2-year and 4-year CDs at other online banks. They’re low even when compared to Ally’s High Yield CDs. Ally’s 3-year and 5-year High Yield CD rates are now 4.25% APY, 50 bps above the RYR CD rate. By keeping the RYR CD rates low, Ally has been unfair to customers who had viewed these CDs as a way to keep pace with rising rates. It’s understandable that the RYR CD rates would be below the standard CD rates of comparable terms, but the RYR rates have been kept too far beneath the standard CD rates in my opinion.

Thanks to DA readers JVW, LanceTX and RichardW for their DA Forum posts on the Friday rate increases.

11-Month No Penalty CD

The No Penalty CD (4.75% APY) now has a 95-bp rate advantage over the Ally Money Market Account (3.80% APY) and 115-bp rate advantage over the Ally Online Savings Account (3.60% APY). This is the largest rate advantage over the savings and money market accounts that I can remember. This is an easy way for Ally Bank customers to get an extra 95 bps on their liquid savings. There are just a few minor downsides to consider. First, when you open the No Penalty CD, you can’t withdraw the funds for the first six days following the date you funded the CD. After that date, you can access the funds (principal and all accrued interest) without penalty. However, you can’t make a partial withdrawal. To access the principal, the CD must be closed. This can be done quickly and easily by using Ally’s online CD management system. If you close the CD and transfer the funds back to your Ally savings, the closure and transfer are immediate. The last downside to consider is the risk you might miss out on a higher online savings account rate in the future. It’s possible that the Ally savings and money market rates will rise above 4.75% in the next few months. If that does occur, you’ll want to close the No Penalty CD. It’ll also make sense to close the CD if Ally increases the rate of the No Penalty CD. In that case, you’ll want to close the CD, move the funds to the Ally savings, money market or checking account, and then open the new No Penalty CD with those funds.

High Yield and Select CDs

With a 5.00% APY, the 20-month Select CD and the 18-month High Yield CD are the only Ally CDs with rates higher than the 11-month No Penalty CD. If you think rates won’t stay high, longer-term CDs make sense. With a banking crisis that might not be over, there are definitely signs that suggest that rates may not stay high for too long. If you want to hedge your bets, longer-term CDs make sense. The 20-month Select CD isn’t that long, but at least you’ll keep earning 5% APY through most of 2024.

One thing nice about the 18-month and 20-month CDs is that the early withdrawal penalty is fairly mild for this maturity length, only 60 days of interest.

Ally Bank’s Early Withdrawal Penalty and Early Withdrawal Process

Ally rarely has the highest CD rates, but it has two significant advantages: 1) mild early withdrawal penalties, and 2) an easy and quick process to request an early closure and to receive the funds.

Ally has the following description of its early withdrawal penalties on its website for its CDs:

• 24 months or less: 60 days of interest
• 25 months – 36 months: 90 days of interest
• 37 months – 48 months: 120 days of interest
• 49 months or longer: 150 days of interest

One downside with Ally’s CDs is that they don’t allow partial early withdrawals. If you need some of your CD principal before maturity, your only option is to close the CD and withdraw the entire amount.

There was a long period of time when Ally disabled the capability to request online an early closure of a CD. It instructed the customer to call to request an early closure. I’m happy to report that the online CD closure capability is back at Ally and it’s still active. When you log in, go to the “Early Withdrawal” section of “Manage CDs”. At this page, you can see your CD’s current balance that includes accrued interest. It also displays the early withdrawal penalty and the “after penalty” balance. This allows you to confirm exactly how much interest you will lose before you request an early closure. To receive the funds, it offers two choices: 1) online transfer, or 2) check. If you choose “online transfer”, you can select the destination account. Any of your Ally liquid accounts are options. Also, any of your external linked accounts are options. If you choose an Ally account, it informs you that “funds should post to your account immediately.” If you choose an external linked account, it informs you that “funds should post to your account within 3 business days.” I can confirm that the funds from a closed Ally CD are immediately transferred and made available in your Ally liquid account that you selected.

Ally’s Ten Day Best Rate Guarantee

For those who opened the No Penalty CD in March before the 4.75% APY took effect, you should get the new 4.75% APY. This is due to Ally’s Ten Day Best Rate Guarantee. Here are the details as Ally describes in its FAQ:

When you fund your non-IRA CD within 10 days of your open date, you'll get the best rate we offer for your term and balance tier if our rate goes up within that time. The Ally Ten Day Best Rate Guarantee also applies at renewal.

There is no minimum deposit to open a CD or get the Ten Day Best Rate Guarantee, but you may get a higher rate with a higher opening deposit.

Other Ally Bank CD Features

Few online banks offer the features that Ally offers for online CD management. When you log into your account, you can change things like how interest is disbursed. Ally allows you to have the interest paid monthly, quarterly, semi-annually or annually. You can also change how interest is paid. You can choose for the interest to be credited back to the CD, paid out to your account or paid as a check. The software can also be used to change renewal options and to request an early withdrawal.

Loyalty Reward of an Extra 0.05%

Ally Bank continues to offer a 0.05% loyalty reward when you renew your CDs. There’s an easy way to use this loyalty reward to get an extra 5 bps on all of your Ally CDs.

Beneficiary Designations and Extending FDIC Insurance

Another nice aspect of all of Ally’s accounts is the ability to designate beneficiaries. You can choose up to ten beneficiaries for each of your non-IRA accounts, and you can choose the designation of either “In Trust For” or “Payable On Death”. Beneficiaries can be individuals or non-profits/charities. You can also specify how to distribute the funds (either equally among beneficiaries or by specific percentages.)

Beneficiary designations can be done online in account management software after the account has been opened. These features make it easy to maintain FDIC insurance on deposits in excess of $1 million. I described how this can be done in this blog post.

Ally now requires that you provide beneficiary identification. According to Ally, the FDIC added regulatory requirements for recordkeeping which required Ally to maintain “complete and accurate beneficiary information.” The beneficiary’s Social Security number or Tax ID isn’t the only option. Other options listed by Ally include, Alien Identification Card, Driver’s License, Valid Passport and Military ID.

Ally also allows customers to open an account in the name of a Trust.

Deciding to Break an Old Ally CD

If you have any old Ally High Yield CDs, it might be worth closing them and moving those funds to a new 11-month No Penalty CD or a new 20-month Select CD. With today’s “high” rates, it won’t take too many months before the interest from the new high-rate account offsets the loss of the early withdrawal penalty. The more time left on your existing CD, the more likely that you’ll benefit from breaking the CD.

To help with this decision, please refer to the DA When to Break a CD Calculator. Enter the APY, balance, early withdrawal penalty, and remaining months of your current CD. Then enter the APY of the new CD. The Calculator will tell you if you should or should not break your CD.

Another High-Rate Option at Ally

Even though the Feds have announced new support for banks to avoid bank runs, there will still be concern for those who have over the FDIC deposit coverage limits at any bank. Those who have that much cash might want to consider money market funds. They’re not FDIC insured, but they’re considered very conservative. Ally customers can easily take advantage of money market funds by having an Ally Invest account. As described in this MyMoneyBlog post, Ally customers with Ally Invest accounts can easily move their cash into money market funds to earn yields which are currently in the mid 4% range.

Availability and Account Opening

Ally Bank offers its services and product line to individuals 18 years or older, who have a valid Social Security number or Tax ID and a U.S. residential street address.

In the online application, Ally asks “have you placed a security freeze on your credit?” According to Ally:

If you have a freeze on your credit as a feature of credit security monitoring, you'll need to request a "federal lift" before you submit your application. Once your application is processed you can re-instate the freeze. If you are already an Ally Bank customer, you can complete the application, and we'll contact you to verify your identity.

We'll use your credit information to verify your identity, protect you from identity fraud and comply with federal regulations. Your credit score won't be affected.

Applying for an Ally account can be done using Ally Bank’s online application or by calling Ally (877-247-2559). You can fund your new account in a few different ways:

• Transfer from an Ally or non-Ally account
• Check (by mail or Ally eCheck Deposit)
• Wire transfer

To open one of the Select CDs, you’ll have to start at one of the Select CD promotional pages (either the 20-month page or the 13-month page.) This is for both existing customers and new customers.

Bank Overview

Ally Bank (FDIC Certificate # 57803) has an overall health grade of "B+" at DepositAccounts.com, with a Texas Ratio of 7.47% (excellent) based on June 30, 2022 data. In the past year, Ally has increased its non-brokered deposits by $1.13 billion, an above average annual growth rate of 0.84%. Please refer to our financial overview of Ally Bank for more details.

Ally Bank has a long history as an online-only bank. The name used to be GMAC Bank. The name change to Ally Bank was completed in late 2009. My first posts on GMAC Bank were in early 2006. Back then it only offered money market accounts and CDs. The Online Savings account was launched in 2008, and the Interest Checking account was launched in 2010.

How the Ally 11-Month No Penalty CD Compares

When compared to other no-penalty CDs tracked by DepositAccounts.com that are available nationally, have a term of at least 11 months and have minimum deposit requirements of $10k or less, no banks or credit unions have a higher rate than the rate offered on the Ally Bank 11-month No Penalty CD. The following table compares the Ally Bank 11-month No Penalty CD to the three highest-rate CDs from other banks and the highest-rate CD from a credit union.

The above information and rates are accurate as of 3/13/2023.

To look for the best CD rates, both nationwide and state specific, please refer to our Best CD Rates Table page. For the best no-penalty CD rates, please refer to our No Penalty CD Rates Table of the liquid account summary.