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Ally Bank Changes Deposit Agreement Covering CD Early Withdrawals
Ally Bank has made an amendment to its deposit agreement that covers CD early withdrawals. The early withdrawal penalty size was not changed. That remains 60 days of interest. The primary change was the addition of the phrase "If we consent to the redemption of a CD or IRA CD prior to the maturity date." Based on this addition, new Ally CD holders should not assume that they will be allowed to make an early withdrawal in the future (excluding the No Penalty CD). This change is effective as of September 27, 2012. I don't remember receiving notification of this change from Ally. Thanks to the DA reader Primary who noted this change in the DA forum.
To review the details of the change, refer to the last page of the September 27th deposit agreement (PDF). This last page has the title "AMENDMENTS TO THE DEPOSIT AGREEMENT DATED JUNE 18, 2011." Below is an excerpt of the September 27th change. I've added emphasis to the "consent" portion.
The language on Page 7 of the Deposit Agreement following the Early Withdrawals “bullet” is deleted in its entirety and replaced with the following language:
You may not make a partial withdrawal of principal from a CD or IRA CD prior to the maturity date. If we consent to the redemption of a CD or IRA CD prior to the maturity date, we will close the CD and impose a penalty. The penalty amount will be equal to the loss of 60 days interest calculated at the interest rate in effect for the CD or IRA CD at the time the redemption request is made. The penalty will be imposed on the balance of the CD or IRA CD. Any accrued (but not yet posted) interest will be applied as a credit against the penalty amount. If the accrued interest exceeds the penalty amount, the excess accrued interest over the penalty amount will be paid to you. If the accrued interest is less than the penalty amount, a reduction of the balance may result.
This penalty does not apply in the case of the Ally No Penalty CD, which does not allow withdrawals during the first six days following the date the account is funded. Thereafter, you may withdraw the balance and accrued interest without penalty.
This penalty also does not apply in the case of death, disability or legal incapacity of any owner, or to a withdrawal of up to the required minimum distribution from a CD held in an Ally traditional or SEP Individual Retirement Account (IRA). For more information about withdrawals from Ally IRAs, please see the Custodial Account Agreement and Disclosure Statement provided at the time of your online IRA application and in your Welcome Kit.
Update 10/26/12: I have not been able to receive information from my Ally Bank contact about the effect of the amendment on existing CDs or an explanation for the reason why the amendment was added. The only information that I received from my Ally Bank contact is the following:
Ally Bank ordinarily will consent to the early withdrawal of a CD as long as the depositor pays the penalty. The policy has not changed.
Update #2: Allan Roth at CBS MoneyWatch just published an article on this. He has received a few more assurances from Ally Bank, but I can't say this eliminates the concerns we have.
Long-Term CD Risks
We have discussed the risks of long-term CDs for several years. If you're planning for a CD early withdrawal, there are two potential gotchas:
- The bank refuses to allow an early withdrawal
- The bank increases the early withdrawal penalty on your existing CD
These risks become more serious if we see big increases in interest rates. When or if that will happen is open to debate. No one wants to be stuck in a low-rate CD when rates are surging higher.
I've documented two cases of the second gotcha. This has been done by two credit unions as I described in this post.
I don't have recent examples of the first gotcha. In my 2008 blog post, I reported on the experience of Chris at Jumbo CD Investments. He remembered two cases in which a bank refused to release funds. In one case, the bank ended up working with him and his client. They were able to have the bank release the funds after negotiating a higher penalty. The other bank would not budge, and it refused to release the funds.
Banks have little reason to refuse early withdrawals in today's environment of falling interest rates. If rates start rising, banks will have more incentives to refuse especially if rates rise substantially.
Ways to Minimize Long-Term CD Risks
One way to avoid long-term CD risks is of course to avoid long-term CDs. This may help with the possibility of fast rising interest rates, but there's another risk: rates keep falling or stay low. That is what has been happening over the last four years. If you avoid long-term CDs and choose short-term CDs or savings accounts instead, you'll lose out on some interest. Of course as long-term CD rates fall, this becomes less of an issue.
Another way to minimize long-term CD risks is to use CD ladders. With CD ladders, you have long-term CDs maturing in regular intervals. This allows you to take advantage of rising interest rates as the CDs mature.
As the famous adage goes, you shouldn't put all your eggs in one basket. The same can be said of CDs. If you have your CDs in multiple banks or credit unions, it reduces the chance that all of your CDs will be hit with changes in early withdrawal terms.
It's also a good idea to keep on top of the interest rate environment. If interest rates start a big rise, it may be better to be in the first group to request an early CD closure. As mentioned by Chris, "the first "wave" of closures will probably go without a hitch. But as the banks receive more and more requests, more attention could be given, and potential refusals."
Raise Your Rate CDs
Finally, you may want to consider CDs that are designed to help customers if interest rates rise. Ally Bank's Raise Your Rate CDs could be helpful. Ally's 4-year Raise Your Rate CD has a yield that's just a little lower than the 5-year CD yield. The advantage of the 4-year CD is that it gives the customer the right to bump up the rate twice before maturity if the rates on new Ally 4-year CDs have increased. For more details, refer to my post in which I compare these Ally CDs.
CIT Bank also has this rate bump feature on its 1-year and 2-year Achiever CDs. These allow you to raise your rate once during the term. It also allows you to add a deposit before maturity. The add-on deposit won't help dealing with rising rates, but this can help if rates continue to fall. I have more details in my CIT Bank Achiever CD review.
Last week I came across another bank with a raise your rate CD. It's Citizens State Bank, and it's offering a competitive 3-year raise your rate CD. I reviewed this small Florida bank and its online application in this post.
One potential gotcha with raise your rate CDs is the risk that the bank won't keep its CD rates competitive. If the bank doesn't keep up with the rising rates, you may never get a chance to take advantage of higher rates using the bump-up feature.
Edit: Corrected the references of the first and second gotchas.
I think you meant the second gotcha; i.e., increasing the early withdrawal penalty on an existing CD.
"I don't have recent examples of the second gotcha . . . "
Here, I think you meant the first gotcha; i.e., refusing an early withdrawal request.
I notice an oddity in that language. It says: "You may not make a PARTIAL withdrawal of principal ..." That applies ONLY to partial withdrawals, not to full withdrawals to close a CD. It says nothing directly to bar full withdrawals, closing the CD.
Yet, the very next sentence that you highlighted says: "If we consent to the redemption of a CD or IRA prior to the maturity date ..." Using the words "the redemption OF a CD ... " there rather than "partial" redemption or "the redemption FROM a CD" would seem to be referring to closing the CD. Yet, there is nothing in the clause where they assume the power to bar closure of a CD -- it bars only partial redemption. I am doubtful that merely referring to a power they have not taken so do not have serves to establish that power.
I'm not a lawyer, but I think that second sentence would have to be interpreted in conjunction with the first sentence, and as such would be referring only to partial redemptions. "The redemption of a CD" it refers to would be the partial redemption it just noted it was talking about, not a full closure that sentence might suggest if read in a vacuum. As such, I see nothing in this clause that requires their consent for full disclosure. Of course, I don't see the rest of the disclosure document, so can't tell if some other clause might play into this. But I am gathering from this article that there has never been a clause requiring consent for early closure of a CD.
@Anon #2, I have emailed Beth asking if this change affects existing CDs.
I posted several times on this subject before and warned the readers not to look and or rely at EWP as a guidance should they need the money before the maturity.
Every bank, every CU has the similar wording for EWP and you could pay big ignorance price should you need the money early. You may have to go to court and pay attorney fees should you decide to sue to get your money early, otherwise you have no other option.
Agreement is agreement and if a judge find in the favor of the bank, you will pay the court and both attorneys fees, which will amount to more then you CD is worth.
The key word is:
“If we consent to the redemption of a CD”
Nothing else matter in the disclosure.
Your interpretation is irrelevant.
The pivotal word in Ken's article, I hope, comes in his fifth sentence. It is the word "new". I take that to mean this change is prospective only, applying only to CDs opened after the effective date of the change. IOW, I take Ken's wording to mean CDs opened beneath the old terms are grandfathered, and may be closed solely at the discretion of the owner, as before.
If I have this wrong please put me right. I might need to close a bunch of CDs right away. I would not own Ally CDs, or any CDs, under these new terms. It's too dangerous (JMHO, of course, not attempting to persuade others to my point of view.).
Class action lawsuit is a dumb idea and will never work. The bank has right to modify and amend any prior disclosure. Go read and educate yourself before throwing sticks and stones at the banks.
It occurs to me, though, acting rashly now would be ill advised. If President Obama can win re-election I'll be resting easy on this for the next four years. And that's all most of us need for CD maturity. With President Obama in office nothing is going anywhere, Bernanke will be reappointed, rates will surely remain subdued, and none of us will need to redeem our CDs early.
Course if the other guy gets in I'm probably gonna have to act quite soon. He will have this country jumping within a year or two. Bernanke will be done. And interest rates will skyrocket before my Ally CDs have time to mature.
A President with a growth agenda taking office in January, instead of a redistributionist, would be like throwing a blowtorch into a barrel of gasoline. Interest rates would just explode.
Whichever way it goes, all will be revealed in less than two weeks. That'll be the time to get out if necessary . . not now.
Clearly that's not true. If it was existing policy it should have been declared on the existing CD document terms and conditions. If that had been so then I would have to assuem I would have read it msyelf and that this website (and several others) would not be so freely providing positive 'near-advertising' for Ally's 'wonderful' 60-day-only penalty clause.
The prior poster who said all that matters is the term 'consent' has it *nailed*. Requiring consent on their part means that the amount of penalty clause is of no concern since it may very well never be applied if one cannot ever close the CDs when one wants to.
Also why was this change made (this one on 9/27)? Why would they now 'clarify' this? Most likely as they intend to enforce the non-consent option and they want to try to 'clear the way' with this beforehand.
My attempts to get an answer to the question of why the real underlying policy been changed in the first place and what happened to cause the 9/27 change in the document in question were met by the usual non-responsive boilerplate answers (before and after several supposed consultations with managers while I was placed on hold) - along with the worthless and insulting 'apology for the inconvenience'.
Basically the outcome is that it applies now (and *always has*) to all existing and new CDs. That's it. Plain and simple.
Frankly I doubt that even the FDIC will help us with this (they're no more on the saver's side than Bernanke and *ANY OTHER* likely future administration *EVER* is).
If you thought we, as savers were merely being ****ed over on interest rates then you can now clearly see the depths of the problem. Those of us who need access to our funds at any time (as per the understood and previously unchallenged terms and conditions) have now been told in no uncertain terms that we cannot even have that any more. Also the fact that they can change the underlying terms (or claim never to have done so, even when they clearly have, as with this) means you cannot trust them at all, in any regard.
Thus Ally is no longer safe for us to invest in. I suggest you go elsewhere than Ally now and settle for the even more increasingly meagre rates that any institution which will *actually* not object to closures/withdrawals will provide. However I suspect once a player as high-profile (especially on websites like this one) shows it's true hand and intent like this then their 'competitors' will also take advantage and we will be worse off than at any time before.
You may think that Ally (and/or other institutions) may let you close/redeem your CDs early because they may have before but there is no ample reason to belive that this will no longer be the case. Otherwise why would they risk the ire of those of us who become aware of this? There is no logic to them doing this unless they intend to *USE IT* - to our great disadvantage.
THIS is why finance and all other sectors MUST have consumer protections IMPOSED upon them. Neither party - while in power - has ever really imposed the sort of protections we require - or we would not be having this issue (or so many others) at this time.
It's yet another very sad day for savers in this country.
You may think that Ally (and/or other institutions) may let you close/redeem your CDs early because they may have before but there is no reason to believe that this will any longer be the case.
Use to be that with small home town institutions, if you had a long-term CD, were older and had a very bad need--like going to a skilled nursing home as private pay, or home fire with partial/large uninsured loss, etc. the Bank would allow for partial withdrawals with NO penalty, because it was the right thing to do for a neighbor in need. I really think most CU's that are smaller would continue to honor a documented hardship withdrawal request, with or without an early withdrawal penalty. On the other hand, if a depositor is trying to dump an older CD rate for a new one that is higher, then they are gaming the system and I can see the Bank not wanting to participate in this costly game to them.
I advocate using local institutions and getting to know the branch manager/staff as a person, not just a number. You would be surprised how things can be accomplished that are maybe gray area, when the customer is a good person and does not cause trouble (no losses or OD's) for the Bank. Also helps in my opinion, when extended family also bank at the institution and are known to be related interests. Makes it harder to be very strict (high fees) with son/wife when the parents are larger depositors and would not want to offend the larger family interests for small matters.
Just my two cents--for what it''s worth.
So, if full closure was not barred elsewhere in the disclosures, then people would still be able to do full closures under this new policy without needing Ally's consent, just as always. This clause would only pertain to people wanting to take out some money and allow the CD otherwise to continue. They apparently don't want it used as a savings account.
Let me explain it to you this way.
1) There is no partial withdrawal allowed of any kind.
2) The full withdrawals are conditional of an approval by the bank.
3) If they say NO, it applies to partial and full withdrawals
4) If they say YES, it applies to full withdrawals only.
Most likely, from now on, it will be very difficult to close the CD prior the maturity.
There is no such thing as "partial redemption" any more than partial pregnancy. It either is or it isn't redeemed - there is no partial.
I suspect there is simple widespread disbelief still on this whole issue, especially on this website - after the very long and frequent history of articles here that have essentially put forward the idea of Ally's 60-day penalty as being the yardstick to compare - not just other redemption penalties to - but shorter term CDs and deposits at their face value returns (even without redemption penalty aspects).
Thus when Ally rip the ground from under us, we're completely ****ed and usually therefore in denial. At least I hope this now marks an end to the essential promotion of Ally as some sort of exceptional banking institution.
The harsh reality is that they're as keen to **** over their hapless customers as every other bank has proven to be.
One hopes the remaining credit unions who feel it worthwhile to actually bother to compete on both interest rate and overall decent, acceptable terms will not follow the example of Ally - or there truly will be no reason to ever assume that one can access any of one's funds prior to the specific deposit period elapsing.
If you want to live your life at the mercy of some bank manager then don't be surprised when they follow up the kind of blatant deceit that's now been exposed here with also showing no regard for your 'circumstances' either. The chances of ever extracting your funds prior to actual period completion now rank very low indeed - for anyone and in any circumstances whatsoever.
Since they can now also change their own rules whenever they feel like it, retrospectively, as Ally has effectively done here, there is no reason to be fooled any longer.
The 'take away' from all this is don't trust any of them, ever.
Your argument is that it is saying that they might give their consent for you to do something that they do not bar you anyplace in the disclosures from doing anyway -- and that makes no sense. What does make sense, and what does go along with what they wrote, is that they don't want you using it like a savings account and coming back from time to time to make more and more withdrawals.
Bottom line on this is that the clause is not as clear as it needs to be -- and that in and of itself could be argued to block its enforcement, although I would not want to predict the court ruling. Perhaps someone, or Ken, would like to get a definitive comment from Ally about it, from an appropriate level rep (not from customer service!).
Do people get home loans from these people? Do they get a contract or just a wink and a nod?
There already have been enough banks changing their deposit agreements retroactively that investors should be aware that gaming the early withdrawal penalties is not without risk.
In fact it is just a new name from a few years ago............essentially a rebirth of GMAC which went under. Hardly a bank with a stellar reputation.
Anyone, including Romney, would be better for us 'savers' than Obama/Bernacke.
It is really THAT simple!
This wording reminds me of the fine print in the disclosures of many Money Market Funds from the large financial institutions. "Except under extraordinary circumstances funds will be available..."
It appears in the case of Ally Bank, and others, this is essentially the same type of language. Under normal circumstances Ally will consent to early withdrawls of CD funds, with EWP. However, maybe given a situation where there are massive requests for early withdrawls on the part of account holders, then they have the option to deny those requests. I envision the unlikely scenario of a significant hike in deposit account rates causing this to occur. Don't hold your breath.
http://www.cbsnews.com/8301-505123_162-57540626/ally-bank-changes-words-not-policy-on-cds/?tag=mncol;lst;1
Now they do.
Therefore they changed their policy.
The good news is that they forgot to notify their old CD customers.
Therefore old CD customers have a good arguement that this can not apply to them.
I've never put much stock in early withdrawal rights when I open CDs. I'm also as relaxed about the Ally situation as Roth seems to be. If Ally were ever to try to veto an early closure of one of my current CDs, I might submit a complaint to the FDIC and the Consumer Protection Bureau under the TISA. Then again, I might not.
My guess is the situation will never arise.
however, they will start to enforce it in full and that is why they gave the update on the disclosure.
Anyone wanting to close early a CD must get prior approval and might take 7-10 business days to either get approval or denial.
however, they will start to enforce it in full and that is why they gave the update on the disclosure."
Did you ask that csr 'where, in their pre-sept 27 terms and conditions , does it say that they could deny a premature cd withdrawl?????
If not, then their policy DID change!
Don't give them any ideas! Someone from Ally reading this forum might very well decide that your point may be valid and start sending out notifications to their existing CD customers in order to preempt that very argument.
Frankly speaking, this, among other reasons, the most important of which is the high likelihood of double or even triple digit inflation as a result of Federal Reserve money printing policy, makes CDs a very bad investment. The best alternative is to save in precious metals, like gold, silver and platinum. These hard currencies rise and fall in the short run, but head up approximately equal to the inflation, in the long term. They are also not taxable during that rise (as is the fictional interest income that is really nothing more than offsetting inflation). That's what I've done since 2006, when I stopped buying CDs.
Meanwhile, I use this great site for finding top paying liquid money market and checking accounts, so that I can earn something on money I use for current expenses, and, during periods in which I am saving up to buy the next metal bullion coin.
First, there is no practical way to know with certainty, at purchase time, that your coins are genuine.
But even worse, there is almost no way at sale time to prove to a buyer your coins are not fake.
"Almost" is a key word here. There is a way to know, at purchase time or at sale time, that your "gold" actually is gold. Companies exist, even today, to provide the needed testing service. It is spectrographic analysis which can ferret out the Chinese fraud. The test is 100% effective and no fake coin can survive it.
But short of such measures, "gold" coins do not offer the kind of safety some individuals believe they do. And incidentally, the fake gold problem will only escalate as the dollar price of gold rises.
I bought few Krugerrands way back in the early 1990s and I wanted to sell them to a private buyer few months ago.
We went to a gold dealer for appraisal, it turned out the gold was only on the surface and not worth much.
I pulled my certificate of authenticity where it stated it is 14 c gold. We called the original dealer for explanation and he would not admit selling me those particular coins and the receipt did not help since there was a disclaimer that all returns must be done within 30 days, after that, they are no longer responsible for any claims or returns.
I called my insurance company, they denied to pay me any losses because they have not tested the coins for authenticity. So paying the premiums on the insurance was a waste of money.
Long story short, I lost over $48,000 on the fake coins I bought in the 1990s.
What I learn was very valuable lesson, never trust anyone on any verbal or written certificates of authenticity even if it comes from the Federal Government, you must have a prior tests done before buying it. Once you give them the money, there is no other recourse but to eat the losses.
Litigating will prove counter productive because the dealer will never admit that those were the actual coins he sold it to you and will counter sue you for slender.
I believe they will do whats right by their customers unless there is a bank run or something and if there is, we wont be able to get money out of checking accounts either.
That said, I have plenty of excess cash earning less than 1.65% so even if Ally froze all my CDs, I would be fine.
I am very sorry for your loss. Please do not read this to mean I'm making light of your misfortune. I am not.
But the kind of bogus coin you encountered is so rudimentary as to be almost laughed at today. The 2012 fakes are incredibly sophisticated, and go far beyond simple cladding. With today's fakes, if you cut the coin in half, or if you test density or color, it appears to be gold. Short of spectral analysis there is no way to detect today's fakes. You can go here to see the website of a company capable of detecting the most sophisticated frauds:
http://spectralgold.com/
I have spoken personally with representatives of that company. They employ spectral analysis methods. The Chinese cannot fool them.
Trouble is, for persons wanting to keep great wealth in gold, coins or otherwise, performing the requisite tests, both at purchase time and at time of sale, is simply impractical.
If I could know for certain a prospective gold purchase was authentic, and if I had a way to prove that to a prospective buyer five years from now without great cost, I probably would buy gold. I don't know how to do that. So I read Ken's blog and buy CDs instead. My CDs are virtually certain to lose purchasing power in five years. But at least they will be worth something in the future and they are liquid. With gold coins neither of those attributes is necessarily going to attach. I would never give seventeen hundred dollars American for an ounce of gold I cannot, as a practical matter, know is genuine. Seventeen hundred dollars is a lot of money. And so-called "certificates of authenticity" are a dime a dozen.