How Ally Checking Account Customers Can Maximize Interest

For the two Ally Bank accounts that offer checks, interest rates have a history of being low, and the rates have fallen even more. Last Friday, Ally Bank lowered the rates on its Interest Checking Account and Money Market Account. There was no rate change on the Online Savings Account.

I’m disappointed in these rate cuts for two reasons. First, these rates were already low, and now these rates have fallen to new lows. Second, it appears Ally Bank did not send an email to customers about these rate cuts as it did when it cut its Online Savings Account APY from 1.90% to 1.80% on October 11th. If you received a notification about these cuts, please let me know in the comments. Ally is not required to notify customers on rate changes, but it’s something to be expected from a bank with a “Do It Right” brand campaign.

The top tier rate of the Interest Checking Account fell from 0.60% to 0.50%. The bottom tier rate remains the same (0.10% for balances under $15k).This is the first time Ally Bank has cut the rate of the Interest Checking Account since 2014. Also, this top tier rate of 0.50% is the lowest rate ever on the Interest Checking Account since it was introduced in 2010.

The Money Market Account rate fell from 1.00% to 0.75%. This is the first rate cut since 2013, and this current rate of 0.75% is the lowest rate ever on the Ally Money Market Account since 2009 when DA began tracking this account. For most of the period when the Fed kept rates near zero, the Money Market rate was 0.85%.

UPDATE 5:25pm 11/12/19: Ally just sent emails to customers notifying them of an Online Savings Account rate cut that will be effective on 11/13/19. Here's an excerpt of that email:

Starting 11/13/2019, the Annual Percentage Yield (APY) on your Online Savings Account is changing from 1.80% APY to 1.70% APY. It will show online in your account details on 11/14/2019.

Maximizing Interest with Your Ally Checking Account

Benefits of Ally Interest Checking or Money Market Accounts

If you have an Ally Online Savings Account, it does make sense to also have an Ally Money Market Account and/or an Ally Interest Checking Account. Unlike the Online Savings Account, these accounts offer check writing which can be useful even if you have your primary checking account at another institution. The Money Market Account is limited to six checks per statement period (as required by federal regulation). The Interest Checking Account has no limit on the number of checks. Both accounts are free with no minimum balance requirement and no monthly service fee. Also, there's no charge when you order standard Ally Bank checks for either account.

Using Ally Interest Checking as Your Primary Checking Account

There are several reasons to consider using the Ally Interest Checking Account as your primary checking account. However, as I described above, the interest rate is low, even if you maintain a $15k balance. Thus, to maximize interest on your cash, it makes sense to keep most of your cash in the Online Savings Account instead of the Interest Checking Account. The problem with this strategy is that you may experience overdrafts on your checking account if you’re not careful. Ally charges a $25 overdraft fee. If it’s your check that bounced, the person depositing your check won’t be happy when they get hit with a Return Deposited fee. Ally charges $7.50 for each return check. Many banks charge more than this.

Ally's Overdraft Transfer Service

Ally Bank offers a useful service to help you prevent overdrafts on your Ally Interest Checking Account. It’s their free Overdraft Transfer Service. When you enable this service, Ally automatically transfers available funds from an account you choose in $100 increments when your checking account comes up short. The only potential gotcha is that if there are too many overdraft transfers, you could be charged a $10 excessive transaction fee for each transfer over the limit (6 per statement period).

Multiple Online Savings Accounts

To reduce the chance of an excessive transaction fee, you can open another Online Savings Account that’s dedicated as an overdraft transfer account for your checking. That has two benefits. First, you can continue to use your primary savings account without concern about your checking account. Each savings account has its own limit of six withdrawals per statement period. The other benefit is that you can keep most of your savings in your primary savings account. Only keep enough in the overdraft savings account to ensure all checking account debits will be covered. If there is a fraudulent debit from the checking account that triggers the overdraft transfer service, it won’t touch your primary savings account. Of course, if you report the fraudulent debit to Ally within 60 days from when your statement is made available, you won’t be liable for the debit.

The Overdraft Transfer Strategy

By using the Ally’s Overdraft Transfer Service and by keeping most of your money in your Ally Online Savings Account, you will be able to earn much more interest on your money, especially after the recent rate cut. The Online Savings Account’s interest rate is currently more than 3x the top tier rate of the Interest Checking Account. If you don’t keep $15k in the checking, the Online Savings Account interest rate is currently 18x higher.

The other option if you frequently write checks is to write checks from your Ally Money Market Account. However, the Online Savings Account rate is also much higher than the Money Market rate (currently 2.4x higher). Ally doesn’t offer Overdraft Transfer Service for the Money Market Account. So you may be able to earn more interest by just using the Interest Checking Account with this Overdraft Transfer strategy.