Review of Some Useful Features of Ally Bank CDs
Over the last year I've opened a few 5-year CDs at Ally Bank. Even though I could find 5-year CD rates a little higher at other banks, Ally has the smallest early withdrawal penalty (only 60 days of interest). In my last post that reviewed the benefits of this, you can see how Ally's 5-year CD when closed early compares to short-term CDs.
When I was logged into my Ally account yesterday, I was reviewing the account details for these CDs. I noticed a few interesting things that I thought would be worthwhile to point out. To view the account details for the CD, click on your CD account name or number that's in your "my accounts" page. This should take you to a page which lists all of the CD details. To see all of the information in this page, click on the "More Details" link.
Ally's Ten-Day Best Rate Guarantee
First, when I opened my last CD, the APY was 2.39%. A few days after that, the 5-year CD APY actually increased to 2.40%. That's not much, but it was nice to see Ally's ten day best rate guarantee took effect as promised. The higher rate and APY are shown in this CD account page.
Here's how Ally describes its 10-day best rate guarantee:
When you fund your CD within 10 days of opening, or renewing your CD, you automatically get the best rate we offer during those 10 days starting with your open or maturity date.
This feature is especially nice when interest rates rise. However, it won't help if the rate falls before you open a CD. The reader cumulus provided a tip in the forum about how you can get a one-day advanced notice of a rate change by using Ally's automated telephone system (1-877-247-2559).
Ally's 60-Day Early Withdrawal Penalty
The CD account page lists several useful numbers. One number is the "current redemption amount" which is the amount you will receive if you cash in this CD today, rather than on the maturity date. I decided to see if my calculation matched this number. Here are two ways I calculated the early withdrawal penalty from the numbers listed in the CD account details page:
Early Withdrawal Penalty =
(Balance + Interest Accrued) - (Current Redemption Amount)
(Beginning Balance this Term)*(Interest Rate)/100 * 60/365
I tested these calculations with a couple of my CDs, and they exactly matched. All of the numbers in parentheses are numbers listed in the CD account details page. Note, the penalty is based on the "Beginning Balance this Term" and not the initial balance. Also, the "Interest Rate" is used instead of the APY.
One final note is that the current redemption amount may be less than your initial balance if it has been less than 60 days since the CD was opened.
In summary, it's nice to see the current redemption amount. It's reassuring to know that you have access to that amount if you need it or if interest rates shoot up.
POD Beneficiaries on Your Ally Bank Accounts
I reviewed adding beneficiaries to your Ally account last October. One thing worth repeating is that the CD account page lists the beneficiaries. However, the beneficiaries won't be listed by default under the account title field. As I described in that previous post, the FDIC requires the account title indicate POD or ITF to qualify for higher insurance coverage. If you call or use the secure email, Ally can have your beneficiaries listed in the account title field with the POD or ITF designation. In addition, they can help you make beneficiary changes. I had some problems using Ally's beneficiaries page so I used the secure email to ask Ally to make some changes. They made the changes as I instructed on the same day.
> matched. All of the numbers in parentheses are numbers listed in the
> CD account details page.
If you find yourself off by a few cents in these calculations, you can
resolve things closer. The deal is that although Ally lists the
interest rate to 4 decimal digits (eg, 2.3717) on the account details
page, internally the rate is actually 5 digits (2.37173).
You can only find out this true rate by phoning (1-877-247-2559) and
having a CSR look it up in their private database. Most of the CSR's
do not seem to be aware of this (took forever first time I attempted
to get this info to resolve a discrepancy). Anyway, help them out by
having them search their "Articles" database, clicking on "rates" to
get at the matrix of exact rates.
The penalty is the future of the next two supposedly received interests at the present balance including the compounded interest on the interest or APY not the interest only rate.
You will be off using the posted formula by about APY minus the Rate to that day going back from the beginning of the term of the CD. If you have drawn the interest monthly the same formula will not apply also, because a loss is always bigger than accumulated value in the CD for the last 2 months.
Example: $2800 per year of interest received, comes to $233.3333 per month X 2months = $466.67 penalty
Using your formula comes to $460.32 of penalty for two months for the same amount of accumulated interest.
Your Current Redemption Amount is a variable that must be assumed at a certain date and time and can create unknown results.
Your Beginning Balance this Term is also variable in time and amount and must be assumed as well.
Your (Interest Rate)/100 * 60/365 is also not correct because the assumed dates can vary whether the penalty is applied in the beginning, middle or end of the previous months posting of the interest and the length of the next or previous months i.e 28 or 31 calendar days.
Conclusion: The posted formula is approximation and leaves a lot to Ally to cheat the customers at applying the penalty rules.