Large Rate Increase on Ally Bank’s 11-Month No Penalty CD

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UPDATE 1/4/17: The No Penalty CD APY has fallen from 1.25% to 0.87%.

Availability: Internet Bank

This might be a sign that Wednesday’s Fed rate hike will have an effect on deposit rates. Ally Bank just raised the APY of its 11-month No Penalty CD by 38 basis points to 1.25%. This is the highest APY that Ally Bank has offered on this CD since 2010.

APYMINMAXINSTITUTIONPRODUCTDETAILS
0.87*%--Ally BankNo Penalty 11-Month CD
Accounts mentioned in this post. Rates as of January 19, 2017.

The 1.25% APY applies to all balances. Ally Bank added rate tiers in 2015, but this 11-month CD currently has just one rate for all tiers.

The No Penalty feature allows you to withdraw all your money, including interest earned, without any penalties, any time after the first 6 days following the date you fund your account. The 6 day exception is due to Federal Regulation D.

Please note that Ally does not offer an IRA version of this No Penalty CD. Ally Bank does offer IRA versions of its High Yield CDs and its Raise Your Rate CDs.

No Penalty CD vs. Savings Accounts and Shorter-Term CDs

Before this rate increase, there wasn’t any compelling reason to apply for the No Penalty CD since Ally savings account rate was higher than the No Penalty CD rate. Now, savers have to decide if there’s any reason to keep sizable amount of money in a savings account rather than the No Penalty CD. Of course, money that you have immediate plans for will still make sense to be in the savings or checking account. However, if you don’t have any immediate plans for the money (either for spending or for investing in long-term CDs or elsewhere), it’s hard not to like this No Penalty CD.

If your savings account doesn’t have a rate as high as this No Penalty CD, why not choose this CD? The same point can be made with CDs with terms under 11 months. Unless that CD has a rate higher than this No Penalty CD, there’s no reason to choose that CD over this No Penalty CD. You can make this No Penalty CD into any term you want from 7 days to 11 months.

Potential Concerns of the No Penalty CD?

Besides losing access to the money for the first six days of account funding, there may be the concern of not having immediate access to the money after the first six days. In 2011, I tested closing the No Penalty CD. Back then you had to either call or use the online secure chat to request a CD closure. Using that process, it took about 48 hours from the time of the closure request to the time the funds became available in my Ally savings account. One thing that has changed is that Ally Bank now has an CD management system that allows customers to manage their CDs when they’re logged into their online account. Using that CD management system, you can now close the CD without help from a CSR. According to an Ally Bank CSR, “when you make the request online via the Manage CDs link, the account is normally closed and the funds transferred internally immediately.” You can still make the request by phone or secure chat, but that will take “up to 1-2 business days.”

Another potential concern of any CD is that you’ll lock into a rate right before the CD rate goes up. To relieve these fears, Ally Bank has long had its “Ten Day Best Rate Guarantee.” This guarantee says that if you fund a new CD within 10 days of opening the account, you’ll get the best rate Ally offers for your term and balance tier if Ally’s rate goes up during that time.

Availability

Headquartered in Midvale, Utah, Ally Bank is currently the 23rd largest bank in the country, with assets in excess of $114 billion and over 2.2 million customer accounts. Ally offers its services and product line to individuals 18 years or older, who have a valid Social Security number and a U.S. mailing address.

Applying for the 11-month No Penalty CD 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

Bank Overview

Ally Bank (FDIC Certificate # 57803) has an overall health grade of "A+" at DepositAccounts.com, with a Texas ratio of 1.51% (excellent) based on September 30, 2016 data. In the past year, Ally has increased its deposits by $10.38 billion, an excellent annual growth rate of 16.23%. Please refer to our financial overview of Ally Bank for more details.

How the CD Compares

As I described above, it’s not really fair to compare the No Penalty CD to other standard CDs. For simplicity, let’s compare it to standard 12-month CDs that are nationally available from other banks and credit unions. When compared to 206 12-month CDs tracked by DepositAccounts.com, only eight 12-month CDs have higher rates. A sample of these are shown below:

Interest RateCD Length of TermCredit Union/Bank
1.36% APY1 Year Money Market Certificate ($1k min)PenFed Credit Union
1.31% APY1-Year eCD ($10k min)VirtualBank
1.25% APY11-month No Penalty CD (no min)Ally Bank

Please note the early withdrawal penalties (EWP) of 1-year CDs from PenFed and VirtualBank. For PenFed, the EWP is “30% of what would have been earned if the certificate had been held to maturity, not to exceed total dividends earned.” For VirtualBank, the EWP is 3 months of interest.

The above rates are accurate as of 12/16/2016.

To look for the best CD rates, both nationwide and state specific, please refer to our CD rates table or our Rates Map page.

Comments
RJM
RJM   |     |   Comment #1
This is a no brainer as I have savings at Ally anyway and some CDs expiring soon. This was money that would have likely been moving out of Ally. Now, I may just move some more money in. But it makes little sense that its rate is higher than their savings. I guess they have their reasons.
Bozo
Bozo   |     |   Comment #2
It's competitive, but "no-brainer" is a stretch, as going out a month longer at PenFed yields 1.36%. I've been trying to figure out what to do with an RMD this next January; as I already have an account with PenFed, their 1.36% seems reasonable. Just a parking-place for the money for a year.
RJM
RJM   |     |   Comment #3
The PenFed CD is not "no penalty". But I have one expiring there soon too and I guess I will go with their 1.36%. I just bought a pair of brokered 5 year CDs at Fidelity at 2.10%. Yesterday, I saw them offering them for 2.15% now. Between those creeping rates and this deal, this should bode well for higher rates going forward. Interestingly, those Fidelity CDs are showing at a value slightly above my cost which I don't believe for a second. I wonder if its some kind of implied value based on accrued interest ? The positive about 5 year CDs is I don't have to figure out what to do with them in 11-12 months. The negative is your interest is not reinvested. I didn't even see the option. And of course, rates could go up several times in the next 5 years. Had these 1.25% deals been available last week, I probably wouldn't have bought the brokered CDs. But, I still need to buy some for my IRA so I hope rates go a bit higher next week. I did notice this Ally CD is automatically reinvested in another identical CD at the end so I wonder if they are hoping people don't pay attention and they can lower the rate then ? Another thing I noticed is they "recommended" that I fund it from an outside bank but they didn't say why.
Bozo
Bozo   |     |   Comment #4
RJM, my "parking-place" money is most assuredly going into short-term (12 month, 1.25% and above) for the duration. Anything above 1.25% I regard as a bonus. My "long-term" (laddered) funds, I just roll as they mature.

I was toying with the idea of parking it in a new credit union for a slightly higher rate, at a slightly higher term, but given the amount involved (perhaps $35K, after taxes, for next year's RMD), it worked out to a rounding error.
RJM
RJM   |     |   Comment #5
I guess I just see value in the .11% differential (1.36 vs. 1.25). I mean, if we presume another .25% increase in 6 months, we could presumably get 1.5% for the 2nd half. But, wouldn't another increase at least be 9 months away ? I don't recall paying close attention to CD rates from 10+ years ago but I seem to remember savings rates of 5-6% at ING Direct before Capital One mucked it up. I probably should have been paying more attention to CDs back then but I expected I would find places for it in stocks and that didn't happen. Oh, Ive bought stocks, its just Ive sold more than I bought, which just made my cash position higher than it should be for too long.
decades
decades   |     |   Comment #6
good place to use keeping the powder dry , thanks Ken
#7 - This comment has been removed for violating our comment policy.
InterestYields
InterestYields   |     |   Comment #8
I moved most of my Ally savings account funds back to the No Penalty CDs given the fixed rate increase mentioned in https://www.depositaccounts.com/banks/ally-bank/offers/. Interestingly their 11 month No Penalty CD now pays 20 basis points more than their 12 month penalty CD (https://www.ally.com/bank/cd-rates

 Always keep in mind the inflation adjusted real rate of return. There's an expectation that interest rates would increase as inflation rates continue to rise particularly in the context of the FED's dual mandate of price stability & maximum employment ( https://www.federalreserve.gov/faqs/economy_14400.htm ) . Ken, it would be interesting to see an article or post on CDs & bank products relative roles in the quantification of the money supply:

https://en.m.wikipedia.org/wiki/Money_supply#Empirical_measures_in_the_United_States_Federal_Reserve...
Anonymous
Anonymous   |     |   Comment #9
Looks like the rate had just recently changed :(
CapitalClimate
CapitalClimate   |     |   Comment #10
As of today, Ally is showing 0.87% for the 11-month CD :(
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