Ally Bank's New IRA CDs and IRA Savings Account
Ally Bank has just launched four new accounts and services this weekend. I did a quick overview of the Ally changes yesterday. Today I'll focus on the new IRAs.
We have been hearing about Ally IRAs since September 2010. I'm glad Ally has finally released them.
You can see all of Ally's IRA offerings in its IRA overview page. You can choose from the three basic types of IRAs: 1) Traditional, 2) Roth, and 3) SEP. Inside an IRA, you can choose three types of accounts: 1) savings account, 2) standard CDs, 3) Raise Your Rate CDs. The No-Penalty CD does not appear to be an option.
Currently, all the IRA rates are the same as the corresponding regular account rates. I don't know if this will always be the case. Sometimes institutions will have special IRA rates.
The IRA CDs have the same mild early withdrawal penalty as the regular CDs (60 days of interest). In Ally's new disclosure, I don't see anything that waives this penalty if you're over 59½. Here's what it says when they would waive the penalty:
This penalty does not apply in the case of death, disability or legal incapacity of any owner, or, in the case of a required minimum distribution (RMD), you may withdraw the amount of the RMD without incurring an early withdrawal penalty.
Remember that you can do an early withdrawal of an IRA CD without withdrawing from the IRA. For example, if interest rates rise, you could close the Ally IRA CD (with penalty) and place the funds into the Ally IRA savings account. From the savings account, you could open a new IRA CD with a higher rate.
I used Ally's online chat service to try to get more details on the IRA opening process. Funding an IRA is more complicated than a regular account. There are three basic ways that you can fund an IRA: 1) rollover, 2) direct transfers, and 3) contributions. Ally's IRA forms popup has forms for all of these. If you apply online, I was told that you should receive these forms mailed to you in a welcome package.
I chatted with two Ally CSRs, and they didn't seem too familiar with the details of IRAs. So I can't give you any more details on account opening. If you do open an Ally IRA, please comment below on your experience.
As I mentioned in my previous post, Ally has updated its account disclosure to include IRAs. Make sure you read through this for IRA requirements.
FDIC Coverage for IRAs
For FDIC deposit insurance coverage, it's important to note that IRAs are considered a separate account category than non-retirement accounts for deposit insurance purposes. For this retirement account category, it's important to note that deposit insurance coverage does not increase for any beneficiaries who may be named in the bank records. Ally has an example on its deposit insurance page which shows how a husband and wife can insure up to $2 million with single accounts, joint accounts, retirement accounts and revocable trust accounts. In a previous post I have more details about using beneficiaries to increase FDIC coverage.
Other Ally Bank Changes
Please refer to my previous post to see a quick review of all of new accounts and services at Ally Bank. I'll be writing more about these new services in future posts.
Re: Investments in an IRA
Not sure why you suggest "savings accounts" (read CDs) are inappropriate for IRAs. Gosh golly, using the "age in bonds" theory of prudent retirement investing, one should have one's age in bonds or cash, the balance in equities or alternative investments. How one spreads that "bonds/cash" allocation around depends on one's view of where the bond market is going as opposed to the predictable (albeit lame for now) yield on a CD. I guess I'm pretty lame by your standards, as I have 75% of my "bonds/cash" allocation in CDs. My bond component is yielding 2.8% on average; my CDs are averaging over 3%. Close, but the cigar goes to CDs. When CD yields on offer dip below bond yields I can get through Vanguard, then I'll have to decide. But, all things considered, I'm not a fan of bond funds. When interest rates spike (and they will), bond funds will tank.
Just my $.02