For the last few years Ally Bank has been offering a loyalty rewards program to its CD customers when the CDs mature. This is intended to encourage customers to renew their CDs at Ally rather than moving the money to another bank. I was able to take advantage of this program when one of my Ally CDs matured in February, and I thought it would be useful for me to share my experience with this program. Other DA readers have already shared their experiences. One of the best reviews of this program was done by DA member cumulus in this forum thread. I provided a summary of the program in this April 2012 blog post.
One important thing to note about this loyalty rewards program is that there's no guarantee that it will be offered to you. Ally has consistently extended the program, but there's no guarantee that it will continue. Ally can always choose not to offer it.
In November I had opened a small 3-month Ally CD. Since the 3-month CD rate is lower than Ally's savings account, it doesn't make much sense to open this CD. However, there's no minimum deposit for CDs, so the deposit can be small. So you won't miss out on much interest. For example, a $500 balance in a 3-month CD (that currently pays 0.29%) would earn a total of 36 cents. If that $500 were in the savings account for 3 months, the total earnings assuming the APY remains at 0.90% would be only $1.13.
When this 3-month CD matured in February, I was offered a 0.25% rate bonus to renew this CD as part of this loyalty rewards program. I didn't find a notice online. A letter about this renewal bonus came in the mail.
When the CD matured, I called Ally Bank and spoke with a customer service rep. I was told that I could change the term to any of Ally's CD terms and still receive the rate bonus. In addition, I could add any amount to the CD. So I decided to change the CD to a 5-year term. I also added to the CD with funds from my Ally savings account.
The CSR applied my request over the phone and provided verbal confirmation. However, she informed me that I would not see the bonus rate applied in my account for another 11 days. At that time, the rate bonus would be applied retroactively and it would be shown in my account when I'm logged in. Also, if the standard rate went up during that time, Ally's 10-day best rate guarantee would apply. It turned out that the standard 5-year CD rate remained the same during this time (1.59% APY). I can confirm that before the 11th day, I saw the new CD with a 1.59% APY. As promised, that went up 25 bps to 1.84% APY after 11 days. That 1.84% APY is now shown for that CD when I log in.
Other 5-Year CD Alternatives
This Ally loyalty rewards program is a good deal, but I don't consider it a "hot" deal since Barclays still offers 1.85% APY on its 5-year CD (as of 3/7/13), and it has an early withdrawal penalty of only 90 days of interest (just a little larger than Ally's 60 days of interest). Barclays CDs can be opened and funded very easily. However, they do have some downsides such as the lack of interest disbursements (see review). You can also get higher CD rates with all-access credit unions. Refer to our CD rate table to find the highest CD rates available nationwide and in your state.
Why I Locked into a 5-Year CD?
Some may wonder why I locked into a long-term CD in today's low rate environment. In January I reviewed the question of CDs or Savings Accounts in Today's Low-Rate Environment?.
First, I'm not putting all my eggs in one basket. This Ally CD is just one of several CDs in my CD ladder, and the CDs in my ladder are only a part of my total portfolio.
Second, CD ladders typically do better than trying to predict future rate changes or keeping all of your "safe money" in savings accounts. When interest rates go up, the CDs in my ladder will gradually get higher rates as they mature. There is a risk that rates will skyrocket and early withdrawals may not be possible. However, I consider it a larger risk that rates will remain low or only rise slowly. In these cases, the CD ladder will result in a higher return than keeping all my "safe money" in savings accounts or short-term CDs.