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No-Penalty CD Change at Ally Bank and an Update on the Early Withdrawal Penalty for Regular CDs
Ally Bank increased the term of the no-penalty CD from 9 to 11 months, and it also increased the yield from 0.99% to 1.35% APY.
According to Ally's description of the no-penalty CD:
We'll hand over your full balance and interest any time after the first 6 days of funding your CD
Ally Bank first introduced the 9-month no-penalty CD in May 2009 when the yield was 2.50%. Since that time, the yield has gone down, and it finally bottomed at 0.99% APY. That was 30 basis points below the savings and money market rate, and this had me wondering why would anyone want this CD at that low rate. Now that the no-penalty CD rate is again higher than the savings account rate, there is a little incentive to lock in that rate to hedge against continued falling rates. If rates rise or you need the money, you can make the penalty-free withdrawal.
Ally's 60-Day Early Withdrawal Penalty on Its Regular CDs
Even though the no-penalty CD rate increased, it's still rather low at 1.35% APY. Another alternative is go with Ally's long-term CD. These have an early withdrawal penalty, but it's a very mild penalty, only 60 days of interest (see page 3 of Ally's disclosure).
If you opened Ally's 5-year CD which has a 3.09% APY (as of 3/25/2010) and did an early closure at 9 months, you would lose about 2 months of interest. So the effective APY would be about 7/9th of original APY which comes out to 2.40%. A closure at 4 months would essentially cut your CD interest in half resulting in an APY of about 1.55%. I have more details on doing this math in my review of Ally's early withdrawal penalty.
Could the Early Withdrawal Penalty Increase?
As I reported last Friday I received assurances from the Director of Public Relations at Ally Bank that this early withdrawal penalty would not be increased on your existing CDs. Readers had been receiving conflicting info on this from Ally CSRs. According to the director, they are in the process of communicating this info to the CSRs so you should be able to confirm this in your future correspondence with them. It appears this process isn't quick. A reader commented on Tuesday that he was told by the CSR that the penalty could be changed on existing CDs. So I emailed the director again. Here's an excerpt of his reply:
We should be complete with training soon. Regarding this issue, your readers can rest assured that the terms under which they purchased their CDs will be honored through maturity.
If you still don't get this assurance from Ally's CSRs, please leave a comment.
Increasing the early-withdrawal penalty on existing CDs is not a typical practice. This question was asked at Ask a Banker, and here is what they said:
In most cases the terms of an CD agreement can't be changed during the contract period unless you agree to the changes. Ongoing accounts such as checking or savings accounts include a provision whereby you may be given adequate notice (30 days) before a change occurs. If you don't agree to the change, such as a fee increase, you are free to close the account.
Increasing the penalty for closing a CD early is not a normal change. Call the bank and ask to speak to a bank officer about this. They shouldn't be able to do it any more than you could tell them you have reduced the penalty to 45 days. Again, an allowance to modify the CD contract unilaterally would be very unusual.
This Ask-a-Banker answer doesn't have any official standing, but it does point out that it's quite reasonable to expect the terms of the CD agreement to remain in effect until maturity. Any bank to make such a change would be the kind of bank that Ally mocks in its commercials.
Banking Guy doesn't list rate hikes? Is this your first time visiting this website??? Some of the best banking and credit union deals can be found on this site. Since it also contains credit union information I feel like this site is much better than Bankrate.com, that is, if you are interested in just finding out the best rates.
Keep up the good work Banking Guy. It's appreciated by many!!!
As for Ally, their story changes depending on who you talk to. Some of their online people told me in chats that the penalty period could change.
The funny thing is that I got my local bank to match the Ally deal. You should try to make banks match or beat published deals. My view is that many of them are desperate and need your cash.
James: Thank you for chatting with me today. How can I help?
Ellen: I would like to open a 5 yr CD in the amount between $180,000 and $200,000. However, I will open such CD only if I get written assurances that, as applies to my CD, during such 5 year term Ally Bank will not increase the early withdrawal penalty from 60 days. Will I be able to get such an assurance?
James: Hello Ellen. The information we have as it pertains to our accounts, is listed in our Deposit Agreement. Our assurances are listed in there, in writing, as a solid promise to you that we will provide the services and products we have promised with each account type.
James: For any policy or offer that is not listed in the Deposit Agreement, I am unable to provide those to you in writing. I do apologize.
Ellen: Your Deposit Agreement is not clear on that point. It states that you can change the terms at any time and in such a case the customer has the right to close the account. However, it is not clear if when closing the account the old early withdrawal penalty of 60 days will apply or the new higher one. Can you please clarify?
Ellen: BTW, this ambiguity in your Deposit Agreement is a problem with the drafting of legal terms and should be corrected by your Legal department.
James: If we do make an adjustment to our Terms and Conditions, or the policies in our Deposit Agreement, we will notify you, and allow you to close your account out under the original terms; however you are able to opt-in for the new terms and conditions by leaving your account open.
James: I will certainly pass this along to the appropriate party for handling. I am sorry it was not made more clear for you.
Ellen: So, just to clarify:
Ellen: if I open a 5 yr CD and Ally changes the early withdrawal penalty after 1 yr from 60 to 180 days, I will be able to close the CD and pay only 60 days penalty? Or will there be no penalty at all due to changes in terms?
James: If we do make such a change as your scenario listed above, you can close your account with the 60 days of interest penalty. It would not be penalty free.
Ellen: Has FDIC approved such change in terms, i.e., does it allow you to change such a material term as the early withdrawal penalty once the CD is opened?
James: All of our policies and procedures, along with our Terms and Conditions and our Deposit Agreement, are all within approved Federal Regulation guidelines.
James: We strive to be a more transparent and honest financial institution. We do not want to be in the same group as dishonest banks. We have re-focused our core business to be all about the customer.
Ellen: Can you please confirm this with your supervisor? I intend to print a copy of this chat and save it for my files.
Ellen: Thank you.
James: Thank you for your patience.
James: I have spoken with my Supervisor, and she has confirmed that all of our policies and products, along with our Terms and Conditions and our Deposit Agreement, are all in fact, within Federal Regulation guidelines.
James: I can also provide you with our FDIC number as well if that would be useful?
Ellen: Thank you for your help.
Ellen: Yes, that will be useful.
James: You are most welcome Ellen. I will certainly make sure they are aware that the wording may be confusing or lacking to our customers. Our FDIC number is 57803. If it is not too much to ask, I would like to see if you would be willing to provide us with some extensive feedback.
Ellen: Certainly.
James: Thank you!