CD Deals Summary
Latest Liquid Bank Account Rates
Fed Holds Rates Steady For Second Straight Meeting - Strategies for Savers
New November Savings Bonds Rates - I Bond Fixed Rate Rises to 1.30%
How Ally Bank Has the Best CD Rates For Most CD Maturities
If you're looking for a short-term CD with maturities under 1 year, you will probably be very disappointed. The short-term CD rates are so low that it's hard to justify a CD rather than an internet savings account. The only benefit of the CD is that you don't have to worry about the rate falling during the term.
If you still want a short-term CD, it's hard to find one that's better than Ally Bank's No-Penalty 11-month CD. The rate isn't that great (1.20% APY as of 2/9/2011). However, if you compare that to the best rates available for 3-month, 6-month and 9-month CDs, it's very competitive. Here are the best nationally available short-term CD rates as of 2/9/2011:
- 1.01% APY 3-month CD at Self Help Credit Union
- 1.15% APY 6-month CD at Metropolitan National Bank
- 1.15% APY 9-month CD at TotalBank
There's no reason to pick these short-term CDs rather than Ally Bank's No-Penalty CD based on the current yields. With the No-Penalty CD, you can close the CD early any time after the first 6 days of funding the CD. At closure, you'll receive the full balance and accrued interest without any early withdrawal penalty. So this effectively gives you any maturity that you want with terms from 7 days to 11 months.
Better Deal Than The No-Penalty CD
If you think it's likely that you will leave the CD untouched for at least 4 months, there's even a better choice. Ally Bank's 5-year CD has only a 60-day early withdrawal penalty. Its rate is 2.39% APY as of 2/9/2011. So if you close the 5-year CD after 120 days, you'll lose half the interest. Thus, the post-penalty yield becomes around 1.20%. Each additional day that you keep the money in the CD, the yield will go up. Here are some additional post-penalty rates for other terms:
- 1.60% at 6 months
- 1.87% at 9 months
- 2.00% at 1 year
- 2.20% at 2 years
- 2.26% at 3 years
- 2.39% at 5 years (no penalty)
As you can see, these rates are much higher than what you can get with short-term CDs at other banks. Allan Roth in his CBS MoneyWatch blog post has a review of this feature and his approach of maintaining multiple Ally 5-year CDs. As I mentioned last year when I first reviewed this Ally CD 60-day penalty, Ally doesn't allow partial withdrawals. So it makes sense to open multiple small CDs rather than one big CD. So if you need some money, you don't have to close the one big CD.
I compared Ally's 5-year CD with some other high-yield long-term CDs in this Ally and PenFed review post. I don't have any updates to the potential risks of long-term CDs that I discussed in this November blog post. This includes the risk that the bank could increase the early withdrawal penalty on existing CDs. I've received an assurance from Ally's public relations director that the penalty would not be increased on existing CDs.
"why lock it up?". Well for a higher rate. I locked with Ally 1 year ago for 3.25% for 5 years. When Ben and the feds will announce they have to buy more bonds after the June dealine, 2.39% will sound good.
Are you saying that the bank may refused access to your own money?
Stuff is about to happen. It's coming from the D.C. area. It's a game changer.
Hmmm. Are you trying to imply that you have some sort of 'insider' information that the rest of us do not yet have?
They may refuse access to "your own money" if you try and break the CD. They can lawfully refuse, or change the penalty. When you take out a CD, it's a contract. If they agree to let you break it, they can set the terms.
( http://www.ally.com/files/pdf/ally-bank-deposit-agreement.pdf )
"Certificates of Deposit — With this account, while an actual certificate is not issued, you will receive a funding letter with all the pertinent information about the certificate of deposit (“CD”). Except for the Ally No-Penalty CD, if you need your funds before the end of the term, your CD is subject to a 60-day interest penalty that is described below."
"• Early Withdrawals — You may not make a partial withdrawal of funds you deposit in a CD prior to the maturity date. If you withdraw all of the funds you have deposited in a CD prior to the maturity date, we will close your CD, add the accrued interest to date to the balance and impose a penalty on your early withdrawal. The penalty imposed will equal sixty (60) days of interest. This penalty does not apply in the case of death or legal incapacity of any owner or in the case of the Ally No Penalty CD, which does not allow withdrawals on the date you fund your account or during the first six (6) days following the date you fund your account (except for the death or legal incapacity of any owner). If you have a Raise Your Rate CD, the 60-day interest penalty will be calculated using the interest rate that applies to your Raise Your Rate CD at the time of your early withdrawal."
Thanks Ken, this post describes my thoughts & original post:
http://www.depositaccounts.com/forum/thread/2343-allys-5-yr-cd-with-its-60-day-early-withdrawal-penalty-advantage.html
Principal-protected (but less liquid) seeking funds are in their 5 yr CDs & more liquid seeking cash funds are in their No-Penalty CDs but now that the CPI (which doesn't accurately reflect energy costs) is officially higher than their No-Penalty rate I'm considering risking some more funds to higher yielding (but not principal-protected) dividend paying stocks (e.g. http://finance.yahoo.com/q?s=VZ , http://finance.yahoo.com/q?s=KMP ) or perhaps sticking to Ally's 5 yr CDs..
Anyone else feeling more forced into this market? Appreciate some constructive thoughts here..
Don't be late.
That's all there is to it. You don't want to be in the herd when everyone is rushing simultaneously for the exit. You must redeem your CD early on, when there's only just a hint in the air of the impending stampede. Point is, if you are able to anticipate events only slightly (not by months, weeks will do it) you will be fine.
For those who might delay too long, though, I agree with others here that locks might be placed on the exit door. At that point, again agreeing with the wise heads here, at that point the penalty simply will not matter.
The early bird gets the worm. And the early bird sees the (early) return of his CD money.
Speaking strictly for mysef, and not intending to convert you to my way of thinking:
I'm not confident I will be able to know, sufficiently far in advance, the correct exit point. Events move so quickly today. It's a concern for me. And the idea of having my money locked up for years at a low rate of interest is unattractive. So I will place my bet on the higher rate short term CDs which I believe are right around the corner.
You are implying that you know something that we do not. In the past people who tried to time the market have failed unless lucky or given insider info.
Since you can't predict your luck, I must assume you either know something or like many others are willing to make a bet. My bet is that the rates will not move much for years as any rate increase will cause economic pain, a market sell off and a new run to safety.
As for the banks refusing access to your money, this could happen with Ally or Amex I guess.
You can have a 5 year CD or a MM account and be denied access to your money. That scenario is that of a default of the feds including the FDIC. I am not an optimist but I do not see that scenario likely to occur.
I have high regard for your thinking, along with the thinking of other posters here. Ken's website attracts many good, sagacious readers/contributors. So I offer this counsel with all due respect:
Don't bet the farm.
So what do you know that we don't?
Get you put a date on it?
Saying that the end is near and referring to some obscure event in DC to support a speculative opinion is a coomon feature of conspiracy theorists.
This being said, it is not because you have paranoia that no one is following you and even a broken clock gives the right time twice a day. So maybe something is brewing......OH!! Can smell the coffee and it is time for a break!!
Down from 1.20 APR to 1.15 APR
Maybe I'm overcautious or even foolish, but my trust in bank promises that extend past anything required by law is essentially nonexistent.