Ally Bank's 5-year CD remains one of the best deals in the nation. The 5-year rate has been going down slowly since I first posted on this deal in January when the yield was 3.15%. The APY is now 2.94% as of 7/2/2010. Ally isn't alone with rate cuts. There are now only a very few internet banks with 5-year yields of 3% or higher. If you want higher yields, you'll have to go with a credit union.
What makes this such a good deal is Ally's very mild early withdrawal penalty of only 60 days of interest. As you can see in my survey of early withdrawal penalties, 5-year CDs at most banks and credit unions have a penalty of 6 months of interest. A few institutions like EverBank and Melrose Credit Union have larger penalties.
With a 2.94% APY, here are the effective annualized yields if you did an early closure of Ally's 5-year CD at year 1, 2, 3 and 4:
- 2.46% at 1 year
- 2.70% at 2 years
- 2.78% at 3 years
- 2.82% at 4 years
As you can see, the rates for 1, 2 and 3 years are far better than 1-year, 2-year and 3-year CDs at any bank or credit union. A long-term CD with a small early withdrawal penalty protects you from two potential cases:
- Interest rates continue like the have been over the last year. For example, last year you could have opened a 1-year CD with a 2.60% APY. If you wanted to keep with a 1-year CD, the best you could do now is under 2% APY. If you opened a 5-year CD last year at Ally Bank, you would still be earning 3.50% APY.
- Interest rates start to rise. In this case the small early withdrawal penalty will be useful. You'll lose 60 days of interest, but if rates rise enough, a new CD with a much higher interest rate will quickly make up for this loss.
There have been concerns that Ally Bank could change the early withdrawal penalty during your existing CD. There should be no chance of this. This is based both on the account disclosure and based on the information from Ally's public relations director (see post).
I had a little problem finding Ally Bank's account disclosure this morning. The link that I had used before (and that's mentioned in Ally's FAQs) was broken. However, the CSR led me this one with a July 1, 2010 date:
- Ally Bank account disclosure, effective 7/1/2010
Here's what it states about the early withdrawal penalty:
If you withdraw funds from your CD prior to the maturity date (except in the case of death or legal incapacity of any owner), you will be assessed a 60-day interest penalty except for the Ally No-Penalty CD
I recently opened another 5-year Ally CD, and I had a few problems. During the application, Ally's system wrongly informed me that I didn't have sufficient funds in my Ally savings account to fund the CD and that I needed to mail in the deposit. At first I was worried that I had entered too many zeros for the CD amount, but it turned out that I had correctly entered the amount. Ally did transfer correctly the funds from my Ally savings account into the CD. I checked with the CSR after the application, and she said others have reported a similar problem. It appears to be a glitch in their system.
Ally's Bank-to-Bank ACH Links
This glitch with the CD application doesn't appear to be the only problem with their online banking system. There's also a problem with the links for external ACH transfers. There continues to be a limit on the number of links a customer can add. I first reported on this last month when I was told that an unknown limit exists. Readers received information that Ally was working to fix an issue with adding the external accounts. Based on my online chat today, it appears they are still trying to fix this issue. Here's an excerpt from the online chat:
CSR: There is not supposed to be a limit for external accounts. However, since the latest update, there has been an issue with how many external accounts our customers can have.
CSR: We are working on the problem but have not received an expected fix date.
I'm glad to see this limitation should just be temporary.