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How Safe is Your Safe Deposit Box?Updated Comparison of Ally and iGObanking Long-Term CDs
Update 8/11/2011: iGObanking's CD rates plummeted today. The 10-year CD now has a 2.00% APY and the 7-year CD has a 1.50% APY.
With yesterday's news from the Fed and with the recent CD rate cuts, I thought it would be a good time to update the comparison between iGObanking and Ally Bank long-term CD rates. Ally Bank's 5-year CD just had another rate cut. As of 8/10/2011, it has an APY of 2.27%. Last Friday, iGObanking.com cut its 7-year and 10-year CD rates by 25 basis points. They're now 2.75% APY and 3.25% APY respectively. Based on yesterday's news, I wouldn't be surprised to see these rates continue to fall.
There are some CDs with higher rates than the long-term CDs at Ally Bank and iGObanking, but few have reasonable early withdrawal penalties. For example, the highest 10-year CD APY that's nationally available is 3.50% at Apple Federal Credit Union (as of 8/10/2011). However, as I described in my Apple FCU CD review, the early withdrawal penalty is up to 3 years of interest.
For 5-year CD rates, the highest CD APY that's nationally available is 3.00% at Connexus Credit Union (as of 8/10/2011). As I described in my Connexus CD review, the early withdrawal penalty is one year of interest. In addition, it requires an active checking account.
The best nationally available 5-year CD that combines a high rate and a reasonable early withdrawal penalty is at University Federal Credit Union. Its 5-year Web CD has a 2.83% APY (as of 8/10/2011), and the early withdrawal penalty is 6 months of interest. I have more details about this CD and membership into the credit union in my University FCU CD review.
So for the best rates and the smallest early withdrawal penalties, Ally Bank and iGObanking.com are still on top. According to Ally Bank's disclosure, the early withdrawal penalty is 60 days of interest, and according to iGObanking's disclosure it's early withdrawal penalty on CDs with terms of one year or greater is six months simple interest on the amount withdrawn.
I have more details about these CDs in this Ally Bank CD review and in this iGObanking CD review. Allan Roth has some additional info on these CDs in his article, Safe CD To Stash Your Cash.
We have long discussed the risks of banks and credit unions making it difficult or costly to use the early withdrawal option. I have investigated if Ally Bank could increase the EWP on existing CDs, and I have received assurance from Ally Bank's public relations director that Ally would not change the early withdrawal penalty on existing CDs (see post). Some have warned iGObanking's disclosure gives them the right to increase the EWP on existing CDs. I have not yet investigated this risk.
There may be some risks with this long-term CD early-withdrawal strategy, but as we saw yesterday, there's also the risk that rates will stay very low for a long time.
To help you make the trade-off analysis, I updated the early withdrawal yield table with Ally's and iGObanking's CDs. I compared iGObanking's 7-year and 10-year CDs with Ally's 5-year CD. I listed the effective yields when the CDs are closed early for each year after account opening. The yields take into account the early withdrawal penalties. As you can see, Ally Bank's 5-year CD only has the best rate at year 1. After the first year iGObanking's 10-year CD still has the lead.
The early withdrawal yields listed below are based on the spreadsheet developed by Bogleheads forum members. It's available from the Bogleheads Wiki: Comparing CDs. It should be noted that the following simple formula comes very close to this spreadsheet:
Post Penalty APY = (Full APY) x (D - P) / D
D = days into term when the CD was closed.
P = days of the early withdrawal penalty
These CD rates are based on the rates listed at the institutions' websites as of 8/10/2011:
Approximate Yields After Early Withdrawal Penalties
| Year of Early Withdrawal | iGObanking's 10-yr 3.25% CD | iGObanking's 7-yr 2.75% CD | Ally's 5-yr 2.27% CD |
| Early Withdrawal Penalty | 6 months | 6 months | 2 months |
| year 1 | 1.61% | 1.37% | 1.89% |
| year 2 | 2.43% | 2.06% | 2.08% |
| year 3 | 2.70% | 2.29% | 2.14% |
| year 4 | 2.84% | 2.40% | 2.17% |
| year 5 | 2.92% | 2.47% | 2.27% (no penalty) |
| year 6 | 2.98% | 2.52% | n/a |
| year 7 | 3.01% | 2.75% (no penalty) | n/a |
| year 8 | 3.04% | n/a | n/a |
| year 9 | 3.07% | n/a | n/a |
| year 10 | 3.25% (no penalty) | n/a | n/a |
Searching for Top CD Rates
To search for nationwide CD rates and CD rates in your state, please refer to the best CD rates section of DepositAccounts.com.
These are meaningless words. The PR director doesn't make those decisions, and if the penalty changes, the PR director's role will be to explain the reason for the change. Just as it's currently their role to explain that they won't change the penalty. But unless it's spelled out in a binding legal document, it doesn't hold water and people shouldn't be making investment decisions based on PR fluff.
It would be helpfully responsible for the author to make this more clear in this post and other posts on the topic instead of giving people false assurances.
Unless the document states explicity that it won't be altered or, preferably, if the Fed or FDIC for banks and the NCUA for the credit unions, would issue a statement that such a move is prohibited, the only safe course would be to assume that they, the banks or the credit unions can change their penalty structure to anything they want.
A prime example is what Ft Knox has implemented. Has the the NCUA issued a definitive statement yet?
Don't trust the banks or the credit unions. Remember, it's always the little guy who gets the ****ing. All we need to do is reflect on their behavior of three and four years ago. Trusting them is akin to trusting Obama and his administration.
Going through UPromise's shopping portal since I buy needs only items, I use the small bonuses to add to the balance.
This isn't the best way to invest, but for me it's a start. This alert feature will help tremendously. Thanks for all your hard work, Ken.