Ally Bank Publicizes Large Deposit Growth - Good News For Savers?

Ally Bank has grown a lot in the last few years, and it’s highlighting this growth in a recent press release. The press release makes the case that the growth has been due to Ally’s “innovative products and customer-friendly features” and due to Ally “building the best banking experience possible”. Ally does offer competitive rates and solid online banking features, but all those Ally ads have probably also helped to spur growth.

What I found most interesting from the press release was the information on its growth. Here’s a list of numbers that were mentioned:

• 32% year-over-year increase in retail deposits in the first quarter of this year, the highest quarterly growth in four years
• 722,000 customers who hold more than 1.4 million accounts
• Grew customers by 100,000, or 16 percent, in the first six months of 2013
• Brand awareness of 44% in 2Q 2013; up from 11% in 2009
• Retail deposits of $40 billion as of July 2013; up from $7.2 billion in 2009
• CD retention rate of 92%
• Customer satisfaction stands at 94%

An internet bank like Ally probably feels this type of news will help bring in new customers. There are still many people who aren’t comfortable with opening accounts at internet banks. They may become more comfortable with an internet bank if it’s a large bank that is growing.

Bank growth isn’t always good for savers. There’s less pressure to keep deposit rates competitive when deposits grow fast. Ally Bank’s rates have been competitive, but Ally has not been a rate leader in the last few years. One reason for this can be traced to the FDIC. In 2009 the WSJ reported on claims that the FDIC asked Ally officials to keep the rates on deposits low enough so the bank wasn't one of the nation's top five rate payers as measured by Bankrate.com. Ally officials never publicly acknowledged this, but there were suggestions of this in Ally’s 10-Ks that were filed with the SEC. Here’s an excerpt from Ally’s December 2011 10-K which suggests that they were under some type of rate restrictions:

The FDIC has indicated that it expects Ally to diversify Ally Bank's overall funding and to focus on reducing Ally Bank's overall funding costs including the interest rates paid on Ally Bank deposits.

The good news is that this line doesn’t appear in Ally’s latest 10-K that it filed in December 2012. However, that may be a moot point if Ally feels it doesn’t need to offer top rates to attract deposits.

One thing that has probably helped Ally retain deposits that Ally didn’t disclose in its press release is its loyalty rewards program for CD renewals. Ally has a long history of offering an extra 25 bps on CD rates to entice customers to renew their CDs. As I described in my post on Ally’s CD loyalty rewards program, there’s an easy way to get an extra 25 bps on your Ally CDs with a little planning. This helps make Ally CDs more competitive, but even with this rate bonus, they’re still not rate leaders.

Another thing that has helped make Ally CDs competitive is the small early withdrawal penalty of only two months of interest. This is very small for long-term CDs. However, Ally made a change to its account agreement that suggests they may not always consent to an early withdrawal. I’m sure Ally lost some CD customers after this change was publicized, but based on the recent press release, it probably didn’t have much effect.