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1 Million To Invest In Cds Vs Alternatives

InterestYields
  |     |   70 posts since 2010

Hi everyone, I've got ~ 1 Million in Ally 5 yr CDs maturing earning close to 3%, Ally can now only offer me 2.05% with the 0.05% loyalty bonus for renewal.  Now if Ally could still offer the same 0.25% loyalty bonus they used to offer I might keep it there but I want to open the discussion of alternatives to the community here.  

This site (thanks Ken!) actually played an important role in my decision to go with Ally initially as it helped me more quickly discover at the time that Ally had a best in class 60 day EWP-Early Withdrawal Penalty (as well as satisfied account owners).  Ally's EWP has since gone up to 150 days & there's new permission language such as "Except for the Ally No Penalty CD, a withdrawal of the entire principal before maturity will be permitted only with Ally’s consent and an interest penalty that is described in More About Certificates of Deposit" but Ally did reply in writing to me that their standard practice is to allow early withdrawal minus the EWP in effect at time of opening or renewal unless extraordinary circumstances occur like bank runs etc. 

I'm now considering the 2.25% APY CDs offered at CD | Certificates of Deposit | Synchrony Bank as Synchrony Bank allows partial withdrawals "For a CD with a term of more than 12 months, the penalty will be an amount equal to 180 days simple interest on the amount withdrawn at the current rate" (https://www.synchronybank.com/cs/groups/cmswebsite/documents/websiteasset/wres009913.pdf unlike Ally Bank that doesn't allow partial withdrawals prompting me to open many smaller CDs if I need to access a smaller amount.  The "at the current rate" Synchrony Bank told me means the rate at opening, simple interest  would today be 2.23%, rather than the rate at the time of withdrawal, whether it's gone up or down then).  http://www.global-rates.com/economic-indicators/inflation/consumer-prices/cpi/united-states.aspx indicate lower inflation rates than 5 years ago that may help mitigate the lower returns (http://www.investopedia.com/terms/r/realrateofreturn.asp).  I regard the EWP as the cost of securing an FDIC insured guaranteed interest rate over the term if maturity is not elected.  I extend the FDIC coverage with Payable On Death CDs (Ally allows 10 PODs & Synchrony Bank allows 4 PODs).

Alternatives to consider?  While I'd certainly appreciate a higher return, I don't want to risk principal & want ready access to it should I find real estate or business opportunities.  While I understand this may be a controversial minority position, I'm among those who frankly think stock markets are increasingly akin to an industry sponsored Ponzi Scheme with questionable fictitious valuations-intrinsic value where new shareholders have less legal rights (Knowing Your Rights As A Shareholder) so insiders can grab their gains.  

There exists concerns about the potential future collapse of the fiat dollar (Fiat Money Definition | Investopedia) raised in countless books but until there's a viable alternative to the dollar it's all relative & the dollar remains relatively strong.  If the dollar were to weaken significantly I'd become even more interested in hard assets with intrinsic value like real estate with income potential (rather than unproductive price unstable precious metals without income potential).  Anything at https://personal.vanguard.com/us/funds/bonds/bonddesk or elsewhere you think I should consider?

Many thanks in advance for a polite & productive discussion,

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Answers
InterestYields
  |     |   70 posts since 2010
Thanks Marcal, funny I was reading the same email promo from Ally on Sept 3 when I got notification of your post.  I wanted to reply here earlier but it took Ally 8 of my 10 day grace period to confirm all 20 of my 5 yr CDs maturing this month would each be eligible for the $200 bonus if funded each with $50,000 (19 matured that day & surprisingly Ally representatives could not initially confirm it).  The rationale for why I was mainly considering Ally & Synchrony large banks at that point is because they seem to offer the best combination of liquidity & yield (not sure I want to pay a huge fee to access my funds for a minor increase in yield for example >4x EWP for 20 basis points at e-loan.com or brokered CDs that as I understand would require selling on a secondary market for early redemption).  While this post is about CD decisions I need to make before midnight! (today is the last day of my grace period) I also want this thread to more broadly explore alternatives to CDs as well.  

Thanks again Ken, I do really enjoy your site & using your https://www.depositaccounts.com/tools although I do have some friendly suggestions.  For example when using https://www.depositaccounts.com/tools/ewp-calculator.aspx?ids=5207,5207,264557,31602,11425&apys=,2.05 (the Early Withdrawal Penalty Calculator in % terms for Ally's standard 2.0% APY 5 yr CD compared to Ally's 2.05% APY with .05% loyalty bonus compared to Synchrony Bank's 2.25% APY & others mentioned in this thread Garden Savings Federal Credit Union 2.38% APY & eloan.com 2.45% APY) including a field on top to quickly calculate the penalty in nominal value terms would also be useful.

For example Ally with 0.05% loyalty bonus on $50,000 x 0.0203 (simple interest rate) = $1015 % 365 days = $2.78082191781 x 150 day EWP =  $417.123287671 or ~ $417.12 to break that $50,000 CD (regardless of when from day 1 to the day before maturity like all EWPs; alternatively 150 EWP days % 365 x deposit amount x rate but that quick formula only clearly shows the EWP without the also interesting non-compounded yearly earnings, for this Ally case 2.03% in decimal terms % 100 = 0.0203 which I just do upfront but Ally used the following formula $50,000.00 multiplied by 2.03% divided by 100 divided by 365 multiplied by 150) while Synchrony Bank would be $50,000 x 0.0223 (simple interest rate) = $1115 % 365 days = 3.05479452055 x 180 days EWP = $549.863013699 or ~ $549.86 to break that $50,000 CD in nominal value terms & for Garden Savings Federal Credit Union $50,000 x 0.0235 (simple interest rate) = $1175 % 365 days = 3.21917808219 x 180 days EWP = $579.452054795 or ~ $579.45 to break that $50,000 CD & finally eloan.com $50,000 x 0.0242 (simple interest rate) = 1210 % 365 = 3.31506849315 x 730 day simple interest penalty = $2,420 to break eloan.com's 50K CD.  The larger the penalty the more obnoxious & less liquid so seeing it in nominal value terms is also helpful.  

So that was ~ $417.12 to break Ally's renewed 5-year $50,000 CD, ~ $549.86 to break Synchrony Bank 50K 5 year CD, ~$579.45 to break Garden Savings Federal Credit Union 50K 5-year certificate & $2,420 to break eloan.com's 50K 5-year CD at any point before maturity.  

Your https://www.depositaccounts.com/tools/compound-interest-calculator.aspx & https://www.depositaccounts.com/tools/break-cd-calculator.aspx results are in nominal value terms so you could put an early withdrawal calculator in nominal terms there as well to make specific dollar costs of early redemption quick+clear among prospective deposit accounts.  

So far I'm leaning towards accepting this Ally promo on some-all of the CDs because with the promo paid no later than Nov 10 (bird in the hand) it beats the total value of all the others at year one & even up to year 2 for Synchrony Bank (beats Garden Savings Federal Credit Union up to 14 months who I did call Friday & they do not allow partial withdrawals like Synchrony Bank so I'd have to set up numerous accounts like I did at Ally to avoid paying large EWPs on any small withdrawal request) but the total return at Ally thereafter is definitely less so there's a cost for the increased liquidity of Ally's lower rate/EWP so I have to assess my liquidity needs.  I also found out that at Ally "Interest will accrue during the Grace Period; however, such interest will not be paid if the funds are withdrawn during the Grace Period" so that's ~$550 lost if transferred out.     

The big question for everyone is do you think interest rates will go down further as they have in general since 2010 due to for example deflationary forces in the economy?  Considering latest inflation figures this 2.05% APY rate is actually a higher real rate of return than 5 years ago (0.170% July CPI vs 1.235% July CPI 5 years earlier-next week the August CPI should be reported if have any faith in the CPI as an inflation measure).  I'm not convinced rates will go up much even 1-2 years from now unless the deflation trend reverses but I could break the Ally CDs if they do..  Ally assured me in writing that their standard practice remains to consent to early withdrawal minus any applicable EWP but when reading Synchrony Bank's deposit agreement for example it states "We may refuse your request to make a withdrawal.where..we have received a court order" which perhaps Ally would also consider as the type of extraordinary circumstance where they may not be able to immediately consent to early withdrawal.  I would have preferred Ally lawyers use less vague language in their updated deposit agreement but is Ally's consent language regarding early closure still a matter of concern for people here as the comment at http://www.cbsnews.com/news/ally-bank-changes-words-not-policy-on-cds/ was brutally critical.   

I did just notice https://www.depositaccounts.com/tools/zero-risk.aspx which is interesting as traditional balanced portfolios try to have bonds-treasuries (rather than CDs which may be higher yielding) to balance out the higher risk of stocks where loss of earnings+principal could happen anytime although CDs, opportunity costs aside, do carry interest rate-inflation rate risks that affect their total real rate of return so nothing is truly zero risk;).

QE it's argued mainly caused volatile risk-asset inflation not general wage inflation (likely due to globalization, technology-automation & declining labor force participation) not yet the feared price inflation (even if you don't trust the CPI there are other inflation metrics-calculators available).  QE however is argued to be causing inflationary bubbles in risk assets or at least major volatility (if you don't think the bubble there will ultimately pop with all the QE taper tantrums or that markets will "correct", the volatility is undeniable)..

I'll admit I'm a Generation Xer who came of investment age ~2000 so that's another reason I don't trust the stock markets (inside+high frequency trading, Ponzi scheme traits etc aside) like my older family members do but I was not too surprised when I read at http://www.bloombergview.com/articles/2015-07-10/economic-setbacks-have-hurt-generation-x-more-than-millennials "There's one more part to this story. Gen Xers might have behaved as "target savers," or letting the markets do their savings for them. This would have made sense if dramatic rises in the stock market in the 1980s and 1990s were repeated in later decades. Instead, they were reversed. The real annualized return of the Standard & Poor's 500 Index between 1985 and 2000 was 15.4 percent a year. Between 2000 and 2014, it was only 1.9 percent a year" & including 2015 adjusted for inflation the annualized return Annualized S&P 500 Return is -0.284%, with Dividends Reinvested is ~1.6% all while risking principal & unreliable returns http://dqydj.net/sp-500-return-calculator & http://i61.tinypic.com/240zngz.jpg (you could also include stock market calculators or links to them Ken at https://www.depositaccounts.com/tools/zero-risk.aspx).  Of course there are other indexes & obviously returns on some specific individual stocks have been amazing but that doesn't necessarily make their returns reliable or virtuous..?  Any other financial calculators people like or constructive thoughts?

Even if the Fed Reserve does act soon with any expected baby step, when will it be significant..  Again the macro question for everyone here now is do you think interest rates will go down further as they have in general since 2010 due to for example deflationary forces in the economy as that could affect CD strategies..?  Are more liquid choices like Ally wise to take advantage of potential rate increases in the coming years or would you lock in the highest sub 2.5% rate for 5 years because rates will not rise in the foreseeable future?  

If you had to speculate where stock markets-bond markets'* rates to CD rates will be 1-2-3-4-5 years from now, feel free to take your educated &/or intuitive guesses:).. 

http://finance.zacks.com/bond-market-size-vs-stock-market-size-5863.html

"The bond market is larger than the stock market for various reasons. Whereas only corporations issue stocks, governments and corporations both issue fixed income securities. The U.S. Treasury is the largest issuer of bonds worldwide. Because U.S, Treasury bonds are backed by the full faith and credit of the government, investors perceive them as risk-free and highly liquid.
Even though the stock market was enjoying record highs in the two decades before the 2008 financial crisis, bonds accounted for 75 percent of corporate financing, according to Mark Skousen’s “Economic Logic.” Stocks are a cheaper source of capital for corporations because they don’t require fixed-interest payments. However, most investors are older and risk-averse, preferring the regular income of bonds."
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54
Ricochet
  |     |   516 posts since 2010
If you really are willing to commit to 5 yrs

So far I'm leaning towards accepting this Ally promo on some-all of the CDs because with the promo paid no later than Nov 10 (bird in the hand) it beats the total value of all the others at year one & even up to year 2 for Synchrony Bank (beats Garden Savings Federal Credit Union up to 14 months who I did call Friday & they do not allow partial withdrawals like Synchrony Bank so I'd have to set up numerous accounts like I did at Ally to avoid paying large EWPs on any small withdrawal request) but the total return at Ally thereafter is definitely less so there's a cost for the increased liquidity of Ally's lower rate/EWP so I have to assess my liquidity needs.

put a 100k for some "no penalty" CDs safety net.
Any interest raise will be so minimal it wont affect rates much.
I realize your looking for GURU advise but your guess is as good as anybodys
considering your detailed post
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12
InterestYields
  |     |   70 posts since 2010
Since I had to make a decision on it yesterday, the detailed post was an exercise, feedback for Ken's great site & open discussion of micro-macroeconomics & investment options including alternatives to CDs..

Round 1 at Ally in 2010 had some 11 month no penalty CDs since upon renewal there used to be a 0.25% loyalty bonus with an ability to change its term & the NP rates were higher than the totally liquid savings but now their NP rate is actually consistently 12 basis points less than the savings rate where I keep some funds & the loyalty bonus is only 0.05% so rather than no penalty CDs I set up multiple low denomination 5-yr CDs (since Ally doesn't allow partial withdrawals unlike Synchrony bank & Barclays I just read) from $500-$5000 that lock in >2x rate with low EWP (round 1 only had 60 day EWP but now round 2 Ally funding would involve 150 day EWP which is still the lowest EWP on a 5 yr CD I've seen but does make fund commitment decisions more complicated).

Last night I did let 17×50K 5-yr CDs renew for a total bonus of 17x$200=$3,400 so far with the other 2 sub 50K CDs I downsized to $500 as complete closure would erase accrued interest during grace period (80% of my grace period Ally spent confirming the promo for all my accounts which surprised me even with the holiday) with those downsized fund differences going to savings to potentially go towards my next eligible 5-yr CD maturing in 10 days (if Ally allowed partial withdrawals like Synchrony Bank or Barclays the decision would be much easier).  I already have ~ 100K in those aforementioned low denomination 5-yr CDs which begin to mature later this month & early next year but most in 11-22 months with the last 35 months out, some still paying as much as 2.69% but most closer to a blended rate of ~2.4%.  Sept 30 I have my last no penalty CD which for aforementioned reasons (lower yield & lower loyalty bonus) intend not to renew but could change its term yet only renewed September 5-year CDs are still eligible for the $200 promotion if funded with $50,000 until bonus paid by Nov 10 (was told they had this $200 promo in August & I've since read on this site from a post by you Ricochet that it was 1/2 that in July, Ally also mentioned their standard non-renewed 5-year rate has been stable at 2.0 APY since 09/04/14 which surprised me as most of my CDs were secured amid far more volatile rate changes).

I may start moving some funds out to Synchrony Bank & Barclays as their yields are higher (currently 25 basis points or in my case 20 basis points with Ally's loyalty bonus) & they allow partial withdrawals so I wouldn't have to set up 100 CDs (in case I had to access smaller amounts) like at Ally but their EWP is 180 days ("180 days simple interest on the amount withdrawn" vs Ally's 150 days on the whole CD since "partial withdrawal of principal before maturity is not permitted on any CD").  Synchrony Bank & Barclays however only allow 4 POD beneficiaries vs Ally's 10 so I can still keep more insured funds more easily at Ally.  Without Ally's $200 "per" eligible renewed CD promo I would not have renewed so many however (for this apparent Q4 2015 bonus that may impact Q4 estimated taxes) & I'm still looking around at alternatives.  Anyone have experience with Synchrony Bank or Barclays & does any bank actually have a lower EWP on a 5 year CD than Ally? 

Hope we can continue having a constructive micro-macro discussion here..
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53
InterestYields
  |     |   70 posts since 2010
FED RATE UNCHANGED & FOMC INFLATION FORECAST photo link below continues to suggest slower than expected return toward their 2% inflation target which could be considered in CD strategies as real rate of return accounting for inflation is important for any investment analysis:  http://i62.tinypic.com/2s9vv2w.jpg
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21
Sevenpercent
  |     |   17 posts since 2015
Is it just me, or would anyone else here feel uncomfortable having more than 250k in one bank?  I know technically you should have FDIC coverage due to having different beneficiaries (such as one for each 250k amounting to 750k, plus another 250k for an individual account), but what if the bank messes up on titling the accounts?  I've read that it's quite common.
In the event of a bank failure, if they haven't titled your accounts correctly, things could get ugly...
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17
InterestYields
  |     |   70 posts since 2010
Before funding & right after using https://www.fdic.gov/edie/calculator.html I had contacted the FDIC who told me that they'd use all bank's records as to the beneficiaries even if the beneficiaries names weren't in the title lines (editable-visible online & on statements).  While that was comforting to hear I still made sure Ally Bank has the beneficiary names in the various account title lines.

Family & I have received again the same $200 near upfront (this time by March 10) promotional offer per renewal of $50,000 5-Yr CD in January.  While I hoped for at least 2.4% APY, I want to be in the lowest cost position to pursue such higher rates asap when available on CDs with relatively low early withdrawal penalties.

As previously mentioned with this promo "closing a 50K 5YR CD early would be closer to the original 60 days (~78 days simple interest) but even without that promo the updated EWP of 150 simple interest days is still better than any current 5 yr CD I've seen.  Ally Bank, Barclays, Synchrony Bank savings-5 yr CDs seem to offer the best combination now of liquidity & guaranteed yield on FDIC insured funds.  

Without that Ally promo however to offset their lower rate for at least 2 years I'd have moved funds to Synchrony Bank (their Savings acct also currently pays over 1%) & Barclays for the extra 20 basis points along with their partial withdrawal capability where you'd pay 180 days simple interest only on the amount withdrawn rather than on the entire account.  

I don't think I'd consider any EWP over 6 months unless the offered yield differential was close to proportional (personally I probably wouldn't consider any CD with an EWP over 9-12 months in this low interest rate environment unless the APY was over 3% for funds I don't expect to otherwise deploy ideally with a partial withdrawal capability for added flexibility in case some of the funds were to be tapped) or invested elsewhere.

I'm no longer too worried that Ally won't honor an early withdrawal request as I have in writing in several secure emails that I have PDF printed copies of that under no circumstance would they not honor an early withdrawal request.  As I had mentioned Ally also assured me in writing that their standard practice remains to consent to early withdrawal minus any applicable EWP but when reading Synchrony Bank's deposit agreement for example it states "We may refuse your request to make a withdrawal.where..we have received a court order" which Ally's lawyers may have been trying to account for in part with their discouraging vague consent language change.  While one Ally CSR had speculated bank runs may be a theoretical scenario when early CD redemption may not be immediately consented to another corrected that speculation by pointing out that the FDIC would come into play under such extraordinary scenarios."

Promo:

NOT SURE WHAT TO DO WITH YOUR MATURING CD?

HERE'S AN IDEA: 
ADD TWO HUNDRED DOLLARS TO IT.You know you've got an Ally Bank 5-Year CD that's maturing soon. But did you know that Ally Bank will give you a $200 bonus for renewing your CD with a balance of $50,000 or more? 

HOW TO COLLECT YOUR $200 BONUS

If you already have $50,000 in your maturing 5-Year CD:
  • Do nothing and allow your 5-Year CD to renew automatically.
If you have less than $50,000 in your maturing 5-Year CD:
  • You can add additional funds to bring the total balance of your renewed CD to $50,000 or more and we'll kick in a $200 bonus.
Call the Ally Bank Customer Care Center (1-877-247-2559) and a representative will help you with any transfers or deposits.

JUST THE FACTS, PLEASE

This bonus offer only applies to 5-Year CDs maturing between 01/01/2016 and 01/31/2016.

Customer is eligible for one bonus per maturing 5-Year CD.

You must call the Ally Bank Customer Care Center (1-877-247-2559) within ten days of your CD's date of maturity to add additional funds to qualify for the $200 bonus; after which, you will receive a letter confirming the balance and terms of your new CD. 

Qualifying funds of $50,000 or more must remain on deposit until your bonus is paid, before or by March 10, 2016.

The $200 bonus will remain on deposit as part of your new CD, and will appear on a 1099 form for 2016 tax reporting. Early withdrawal penalties may apply. Please consult your tax professional. 

View all our CDs and rates at ally.com/bank/cd-rates

TALK TO AN ALLY CUSTOMER CARE AGENT — 1-877-247-ALLY (2559)
We're available 24/7 to help you renew your Ally CD.
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46
OAG
  |     |   23 posts since 2010
Request written confirmation from the bank would be a prudent action is you exceed the $250K. I know you said banks but my two primary CU's provide a written ownership/beneficiaries cofirmation for each of my several CD's and underlying accounts.
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2
marcal
  |     |   52 posts since 2011
I received an email from Ally today concerning my maturing CD.  They are offering a $200 bonus if  I add to the CD and bring the balance up to $50,000.  Hopefully you also got the email. 


You know you've got an Ally Bank 5-Year CD that's maturing soon. But did you know that Ally Bank will give you a $200 bonus for renewing your CD with a balance of $50,000 or more?

HOW TO COLLECT YOUR $200 BONUS

If you already have $50,000 in your maturing 5-Year CD:
  • Do nothing and allow your 5-Year CD to renew automatically.
If you have less than $50,000 in your maturing 5-Year CD:
  • You can add additional funds to bring the total balance of your renewed CD to $50,000 or more and we'll kick in a $200 bonus.
Call the Ally Bank Customer Care Center (1-877-247-2559) and a representative will help you with any transfers or deposits.

JUST THE FACTS, PLEASE

This bonus offer only applies to 5-Year CDs maturing between 9/1/2015 and 9/30/2015.

Customer is eligible for one bonus per maturing 5-Year CD.

You must call the Ally Bank Customer Care Center (1-877-247-2559) within ten days of your CD's date of maturity to add additional funds to qualify for the $200 bonus; after which, you will receive a letter confirming the balance and terms of your new CD.

Qualifying funds of $50,000 or more must remain on deposit until your bonus is paid, before or by November 10, 2015.

The $200 bonus will remain on deposit as part of your new CD, and will appear on a 1099 form for 2015 tax reporting. Early withdrawal penalties may apply. Please consult your tax professional.

View all our CDs and rates at ally.com/bank/cd-rates

TALK TO AN ALLY CUSTOMER CARE AGENT — 1-877-247-ALLY (2559)
We're available 24/7 to help you renew your Ally CD.
Reply
15
Rockefeller
  |     |   5 posts since 2015
E-loan is currently offering a 5yr 2.45% CD.  E-loan CD's are FDIC insured.  You might also look into Brokered CDs.
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7
John Sears
  |     |   67 posts since 2015
E-loan has a 2 year Penalty fee.  That's just plain criminal, would you trust anyone pulling that crap?
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6
InterestYields
  |     |   70 posts since 2010
Given "the new normal" low interest rates (negative interest rates in some European countries) & deflationary environment (latest US CPI for September 2015 was -0.036 % & the continuation-projections of below the Federal Reserve's 2% inflation target according to other low inflation metrics including core PCE despite all their actions), I personally elected for the lowest Early Withdrawal Penalty CD with a yield over 2% APY which is Ally's 5 year CD (2.05 APY with the 5 basis point loyalty bonus) considering that Ally offered promo ($200 promo per 50K CD renewed in September x 18 = $3,600 paid by Nov 10).

Ally Bank's EWP used to be just 60 days simple interest but now is 150 simple interest however if needed utilizing their near up front $200 promo per 50K CD renewed in September closing a 50K 5YR CD early would be closer to the original 60 days (~78 days simple interest) but even without that promo the updated EWP of 150 simple interest days is still better than any current 5 yr CD I've seen.  Ally Bank, Barclays, Synchrony Bank savings-5 yr CDs seem to offer the best combination now of liquidity & guaranteed yield on FDIC insured funds.  

Without that Ally promo however to offset their lower rate for at least 2 years I'd have moved funds to Synchrony Bank (their Savings acct also currently pays over 1%) & Barclays for the extra 20 basis points along with their partial withdrawal capability where you'd pay 180 days simple interest only on the amount withdrawn rather than on the entire account.  I don't think I'd consider any EWP over 6 months unless the offered yield differential was close to proportional (personally I probably wouldn't consider any CD with an EWP over 9-12 months in this low interest rate environment unless the APY was over 3% for funds I don't expect to otherwise deploy ideally with a partial withdrawal capability for added flexibility in case some of the funds were to be tapped).

Recently I received 18 emails from Ally bank confirming "We are excited to let you know that the $200 CD Bonus you qualified for will be deposited into your account ending in **** on or before November 10, 2015.  Thank you for choosing Ally Bank to grow your savings!".  While I'm not yet convinced deposit accounts' offered interest rates will significantly increase anytime soon in the foreseeable future (through Federal Reserve financial engineering or market forces it oversees), I'd like to be in a low cost position to pursue it (or other investment strategies with a risk-real rate of return analysis) should it happen within the next 1-5 years.  The rest of the funds there remain in numerous low denomination CDs (since Ally CDs don't yet allow partial withdrawals) still earning closer to 3% maturing in 2016 so this subject clearly remains of interest in the stewardship of such savings.

Refs:

http://www.federalreserve.gov/faqs/economy_14419.htm

What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation?

Inflation occurs when the prices of goods and services increase over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy.

Federal Reserve policymakers evaluate changes in inflation by monitoring several different price indexes. A price index measures changes in the price of a group of goods and services. The Fed considers several price indexes because different indexes track different products and services, and because indexes are calculated differently. Therefore, various indexes can send diverse signals about inflation.

The Fed often emphasizes the price inflation measure for personal consumption expenditures (PCE), produced by the Department of Commerce, largely because the PCE index covers a wide range of household spending. However, the Fed closely tracks other inflation measures as well, including the consumer price indexes and producer price indexes issued by the Department of Labor.

When evaluating the rate of inflation, Federal Reserve policymakers also take the following steps.  
   
     First, because inflation numbers can vary erratically from month to month, policymakers generally consider average inflation over longer periods of time, ranging from a few months to a year or longer.      

     Second, policymakers routinely examine the subcategories that make up a broad price index to help determine if a rise in inflation can be attributed to price changes that are likely to be temporary or unique events. Since the Fed's policy works with a lag, it must make policy based on its best forecast of inflation. Therefore, the Fed must try to determine if an inflation development is likely to persist or not.

          Finally, policymakers examine a variety of "core" inflation measures to help identify inflation trends. The most common type of core inflation measures excludes items that tend to go up and down in price dramatically or often, like food and energy items. For those items, a large price change in one period does not necessarily tend to be followed by another large change in the same direction in the following period. Although food and energy make up an important part of the budget for most households--and policymakers ultimately seek to stabilize overall consumer prices--core inflation measures that leave out items with volatile prices can be useful in assessing inflation trends."

http://www.federalreserve.gov/faqs/economy_14400.htm

"Why does the Federal Reserve aim for 2 percent inflation over time?

The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public's ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling--a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term."  

http://www.advisorperspectives.com/dshort/updates/PCE-Price-Index.php
http://www.advisorperspectives.com/dshort/updates/PCE-Price-Index.pdf

https://www.google.com/search?q=the+new+normal"+low+interest+rates
http://cointelegraph.com/news/114200/inflation-negative-interest-rates-and-the-new-normal
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53
steved
  |     |   36 posts since 2014
I almost opened a CD with Synchrony.  They accidentally executed a duplicate ACH transfer and couldn't find/reverse the erroneous one.  I didn't get a lot of confidence in their systems/controls--I'd be careful about giving them a significant sum of money.
Barclay's has competitive rates and is used to dealing with large sums.
I'd also suggest looking at brokered CDs.  5 year CDs are paying about 2.35% and it's a convenient way to stay under the FDIC limit while still keeping everything in one account.  No early withdrawal, although you can sell on the secondary market.

 
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InterestYields
  |     |   70 posts since 2010
Regarding brokered CDs (or Treasury-municipal-corporate Bonds), I prefer to know with certainty the early exit costs up front before committing funds hence my inclination toward low EWPs from Ally, Barclays, Synchrony (where any early speculative selling on secondary markets could be avoided).  

I always try to look at the whole big picture investment so I'd personally expect a higher yield premium before considering higher risk-uncertainty.  Accountability is expected so I'm more risk-averse than most. 

That experience you had with Synchrony was with an erroneous ACH transfer via phone (are phone calls recorded like Ally) or online request (where you have an instant digital record)? 

I appreciate that Synchrony Bank offers 1.05% APY & Barclays 1% APY like Ally on 100% liquid savings (compare that to your local bank-Barclays advertises it as "10x the national average" & is actually 100x more than several major banks savings rate), while of course that rate is variable compared to a fixed rate CD it's been pretty constant since I began considering them.  

Ally Bank apparently will begin tiered rates Nov 7 however which is a big change for them & just received an email stating:

"We have updated the terms of the online banking services we provide to you. Version 8.0 of the Ally Bank Online Banking Services Agreement dated November 7th, 2015 will be available online today. Here is a summary of the changes.   We have added the following Transactions and Services to Section II: Request a Wire Transfer, Set CD Renewal Instructions, Request CD Early Redemptions, and Change CD Interest Disbursement Settings. The Online Banking Services for Eligible Accounts chart in Section II, B. has been updated to reflect these additional transactions and services" which I do find helpful as I like as many online control options as possible but I may have to move Savings elsewhere depending on Ally's new tier rates that I've been told will be published online Nov 7 (& potentially lower denomination CDs so I may open one-some November 6 & only fund it later depending on their new changes).
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47
John Sears
  |     |   67 posts since 2015
I got in on Ally Bank at 2.37% with an early withdrawal of 2 months.  Thanks to an article by Allan Roth of Wealth Logic I realized structuring about 1/2 million with $100K in $10K units made real sense for when I might need money.  So far, I have broken two $10K CD's.  I was able to get full FDIC protection with some of it being joint accounts.

My problem is what happens at the end of May when they expire.  I think it's better to project that interest rates will be the same, the highest being 2.25% for 5 year.  Should I commit everything to that rate, or take a loss by putting everything in 1% Savings and Money Market Accounts and hope things might change by year's end?  Or ladder some of it?  The big difference now, of course, is the six month penalty as opposed to a 2 month penalty.  Having been burned by the stock market I simply can't afford to speculate again.
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13
InterestYields
  |     |   70 posts since 2010
I received my $3,600 Ally bonus already last night (for the aforementioned 18 renewed 50K CDs x $200 discussed above-Ally honored this one week earlier than promised) as did people I know who followed me received their bonuses.  I actually secure emailed Ally on a quarterly basis once I was within 1 year of maturity letting them know that their current 1/5 the original loyalty bonus (its continuation being determined on a quarterly basis) would not be effective in maintaining soon to be maturing funds, reminded them about client acquisition costs, that I & others I advise are prepared to move funds externally ultimately specifically naming Barclays & Synchrony without a more competitive rate or bonus.  Since they couldn't offer me a rate match with their original 25 basis point loyalty bonus, at least they managed to offer this near up front bonus that (with the 5 basis points loyalty bonus) beats those others for at least 2 years when I'll still be in a low cost position to act on higher rates if they exist.  You could ask about such bonus offers specifically for your profile at the start of the maturity quarter.

For clarity Ally is not a 6 mo EWP like Barclays & Synchrony, it's 5 mo or more precisely 150 days simple interest.  Ally has ladder links below but rather than locking in lower rates on a 1 yr CD or other shorter than 5 yr CDs for laddering you will see at link the effective returns on a monthly & yearly basis deducting the EWPs of 5 yr CDs across Ally & comparables.  If all are maturing simultaneously you could put what you need for the next 10.5 months (from maturity date) in savings & anything you don't expect to need in that 10.5 months (when yield already starts beating their 1 yr CD with a higher yield potential) lock-in their highest 5 yr CD rate option (i.e low EWP is like a built in ladder with potential for their highest yield).  

I'm no longer too worried that Ally won't honor an early withdrawal request as I have in writing in several secure emails that I have PDF printed copies of that under no circumstance would they not honor an early withdrawal request.  As I had mentioned Ally also assured me in writing that their standard practice remains to consent to early withdrawal minus any applicable EWP but when reading Synchrony Bank's deposit agreement for example it states "We may refuse your request to make a withdrawal.where..we have received a court order" which Ally's lawyers may have been trying to account for in part with their discouraging vague consent language change.  While one Ally CSR had speculated bank runs may be a theoretical scenario when early CD redemption may not be immediately consented to another corrected that speculation by pointing out that the FDIC would come into play under such extraordinary scenarios.  I personally use POD beneficiaries to extend FDIC coverage which Ally also has online tools to modify as needed.  I have other CDs maturing in 2016 before yours so I'll post back here but of course feel free to post your thoughts in the interim.

Refs:
https://www.depositaccounts.com/tools/ewp-calculator.aspx?ids=5207,5207,264557,31602,11425&apys=,2.05 Vs. Ally's advertised conventional ladder links:

https://www.ally.com/bank/cd-ladder/

https://www.ally.com/bank/cd-ladder/the-basics.html#local=step-by-step
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47
steved
  |     |   36 posts since 2014
The duplicate transfer was initiated by an online request at the Synchrony web site.  Synchrony made two withdrawals from my Fidelity account, but only one was credited to my Synchrony account.  Synchrony was unable to locate the duplicate transfer even when Fidelity supplied them with all of the ACH tracking numbers. Worse, Synchrony's ACH department was unwilling to speak directly to Fidelity--They talked to their customer support group, the customer support group talked to me, and I talked to Fidelity.  I finally gave up and filed a Reg D challenge to get the money back, but I will never again trust Synchrony with access to another account.
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3
InterestYields
  |     |   70 posts since 2010
Ever happens again anywhere you could contact https://www.nacha.org/contact if bank management can't resolve it..

Hopefully Synchrony Bank has their online act more together now, I know the Ally Bank online experience has really improved since 2010 (even if their rates haven't).
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34
rebco
  |     |   3 posts since 2016
It's not 3% but you can get 2.5 at Patelco credit union as of yesterday.
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John Sears
  |     |   67 posts since 2015
Thank you for posting this.  It's a 6 mo. early withdrawal which means (fingers crossed) that this is a sign of things to come.
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Barabbas
  |     |   9 posts since 2016
If you have that much wealth, why don't you have an advisor working for you? Also, that's a lot to have in cash. You could earn a better yield and have more security by investing in a Treasury bond fund. No need to worry about rolling over, either. Just contact Vanguard (mutually owned, has the lowest expense ratios and best tracking in the business) and find the fund with the risk tolerance appropriate for you.
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InterestYields
  |     |   70 posts since 2010
Advisors-industries-systems pushing risk-commission assets & want to charge for losing my money..?  I've not been favorably impressed by all the advisors (who are available to me) I see advising others but feel free to suggest firms-ideas.  I've considered Vanguard earlier in this thread but so far have not yet found them irresistible.
 
CDs vs Bond funds links-discussions below but the 5 yr CD rate from Ally with current 0.05% loyalty bonus was & currently is higher than the 10 year US Treasury & currently 61 basis points higher than the 5 yr US Treasury:

https://www.bogleheads.org/wiki/CDs_vs_bonds

https://www.bogleheads.org/forum/viewtopic.php?t=153309

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=141848

I prefer reliable, insured risk-free yields to lowest risk investing with return of capital while beating inflation rather than chasing bubbles or artificially inflated assets (although I am worried the USD could also potentially qualify to some extent as a fiat currency bubble should better alternatives develop to its dominant reserve currency status).  

I like the liquidity-fungibility of cash transfers but am open to the right real estate or business insider opportunity for a tangible asset-business with some appreciation-income growth potential that could also offer some enjoyment &/or utility.

There is one unconventional advisor Allan Roth who seemed to agree with this Ally approach (noticed him after I came to the same conclusion earlier in 2010):

http://www.cbsnews.com/news/where-to-stash-your-cash/ 

Without the Ally near upfront bonus discussed in this thread that makes the early withdrawal penalty closer to ~78 days I'd have gone for Barclays or Synchrony Bank's 2.25% 60 month CDs with 180 day EWP.  Below is a link that compares them, since the tool only offers the EWP in terms of months rather than days, the last two columns of 2.05% at 2 & 3 month EWP is more accurate than the standard 5 months in this case.  Ally with 0.05% loyalty bonus on $50,000 x 0.0203 (simple interest rate) = $1015 % 365 days = $2.78 x 150 day EWP =  ~$417.12 to break that $50,000 CD minus the near upfront $200 bonus if needed would be ~$217.12 is closest to $50,000 x 0.0203 (simple interest rate) = $1015 % 365 days x 78 days = ~$216.90.

https://www.depositaccounts.com/tools/ewp-calculator.aspx?ids=5207,252521,264557,5207,5207&apys=,,,2.05,2.05&penalties=,,,3,2

Also considering for future deposits with higher yield (also with 6 month EWP with potential partial withdrawals) Garden Savings Federal Credit Union :

https://www.depositaccounts.com/tools/ewp-calculator.aspx?ids=252521,264557,31602,5207,5207&apys=,,,...

See Compound Interest Calculator to see monthly breakdowns in nominal USD terms:  https://www.depositaccounts.com/tools/compound-interest-calculator.aspx 
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John Sears
  |     |   67 posts since 2015
Your columns are second only to Ken's.  Allen Roth puts out a terrific free "Wealth Logic" newsletter that draws together his various columns.  He had a lot to do with Ally Bank and my 5 year CDs with them (i.e., structuring them as $10K units).  I firmly believe that if you know nothing or very little about something (in my case, stocks, bonds, mutual funds) then you should stick with being as conservative as possible. 

I lost $20K on paper with my company stock (NYT).  It was at 40, split, the shares went up to 40 again.  Everything went haywire for them, including the purchase of the Boston Globe for 1.1 billion and selling it 14 years later for 70 million.  That is their core business, no less.  The only sure thing to me with $$ is total insurance (FDIC, etc.) with no possibility of losing the principal.
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InterestYields
  |     |   70 posts since 2010
This impressive site (which I wish would include EWP data & links to deposit agreements for every deposit institution) & Allan Roth did seem to confirm my Ally conclusions including structuring numerous denominated Ally CDs ($50,000 down to $1,000 even some $500; I had ~100 CDs there at one point) but this latest bonus required $50,000 CDs with no incentive above that.  

While happy with Ally's improved online services since 2010, I am curious about trying out other higher yielding deposit accounts at Barclays, Synchrony Bank, Garden Savings Federal Credit Union all of which allow partial withdrawals as their 180 day Early withdrawal penalty applies only to the amount withdrawn which could offer more flexibility & less need to open so many denominated CDs compared to Ally.  

I've suggested to Ally Bank that they consider allowing partial withdrawals in the future & before renewing CDs there have in writing from various Ally representatives that under no circumstances will they not consent to early withdrawal of any of my CDs.  I have so many written conditional clarifying statements from so many different Ally representatives that under no circumstances would they deny my early withdrawal request that they would likely first enforce any non-routine new consent language on the vast majority that don't have that.  While admittedly anecdotal, I know people in financial services & so far I've been able to resist entrusting them with my money..

Also see:  https://www.depositaccounts.com/community/ask/22210-1-invest-cds-alternatives.html#comment38890
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43
Sevenpercent
  |     |   17 posts since 2015
I'm probably about as risk averse as you, InterestYields.  Besides visiting this site daily to check for promotions, the only other financial site I go to is Vanguards bogleheads forum.  I'm trying to learn everything I can by reading their posts and hoping to figure out something I'm comfortable with for at least a small portion of my savings.  You're either a loaner or an owner, and the only way I can see reducing risk enough to be a stock owner is by investing in broadly diversified index funds with the lowest fees around.  0.05% expense ratio for a few of their most popular offerings on the board isn't bad.
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2
InterestYields
  |     |   70 posts since 2010
I could tell you that I expect a larger risk premium for equities (i.e. a larger total return for the higher risk of the stock market than offered by performances since 2000) but the bigger issue not addressed in otherwise topical books like Allan Roth's book is quite simply why trust your money with those who are not really accountable. 

It's one thing to risk yield & whole other to expose the entire principal.  As a critical thinker who analyzes everything I acknowledge I'm not the most conventional person in that I do not presume something has utility-nobility nor should be done based just on convention.  In technology-business this may be called "disruption".  Frankly I see technologies disrupting more than just business to disrupting culture-global economics-politics.  While for example I use Amazon & Google-Alphabet everyday & could have made a lot of money last year trading their stocks in the overall down diversified indexes, it still doesn't seem to change my position that I simply do not trust my money with those who are not really accountable to me without more protections in place; properly structured CDs offer free valuable federal deposit insurance engendering more realistic confidence-security.  If you think as a shareholder that equities-index funds are accountable to you try to collect on your losses (regardless of board-advisor compensation).  "Past performance is not a reliable indicator of future results" afterall..

While I may not agree with every statement the following celebrity billionaire has to say I do find the following links worthwhile reads for the critical thinking skeptic considering investing in equities (i.e. I've already stated in this thread that I see the current stock market akin to a ponzi scheme designed to enrich insiders at the expense of other less insiders):

http://blogmaverick.com/2006/01/03/the-stock-market-is-for-suckers/  

http://blogmaverick.com/2010/08/20/the-stock-market-is-still-for-suckers-and-why-you-should-put-your-money-in-the-bank/

http://blogmaverick.com/2013/01/10/the-stock-market-2/

"A win-win no one will tell you about - http://www.cbsnews.com/news/four-cds-that-protect-against-a-bond-bubble/ :
These great CDs exist because no one has the incentive to tell you about them. They don't pay commissions, and any planner charging a percentage of assets can't use these vehicles to get their take. And it's lucky for us that they don't because, if they did, these rates would disappear as soon as advisors steered billions of dollars toward these products."

I view these posts somewhat as an investment, hopefully a useful exercise that yields a net gain.  It seems the majority are conformists or forced into conformity so I'd be surprised if discussing this or the idea that the emperor has no clothes with the minority on this site affects rates particularly compared to the idea of how quantitative tightening predictability seems to affect markets..

I like to think I remain open minded to alternatives so feel free to weigh in with productive, polite or at least amusing thoughts ;)..
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44
InterestYields
  |     |   70 posts since 2010
I do have additional Ally 5 yr CDs maturing in August & just noticed Ally's 5 yr CDs are down to 1.75% (after being at least 2% for years) so even with their 0.05% loyalty bonus (& if offered again their near up front $200 promo per 50K CD where I had renewed many of those last September) it looks like I should keep looking at other banks for future CDs.  

Synchrony Bank apparently is doubling their EWP three weeks from tomorrow on June 13 so they're off my consideration list.  Barclays offering still seems viable & hopefully the current low chance of an affirmative Brexit vote June 23 won't affect this. 

As I mentioned at https://www.depositaccounts.com/community/ask/23923-4-promising-5-year-cds-duds.html#comment40204 https://www.kearnybank.com/Kearny-Bank-Personal-Rates.aspx#Certificate-Of-Deposit-Accounts looks interesting but need to confirm their EWP & POD details.  

Ally does generously allow up to 10 PODs extending FDIC coverage to 2.5M (250K per living POD beneficiary) while Barclays only allows the more common "up to four beneficiaries" according to https://www.banking.barclaysus.com/terms-and-conditions-online-savings.html?refid=BBDDARTSART0115&ds=BBDDARTSART0115 .

Other thoughts as we here do battle with "the new normal" ?
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46
John Sears
  |     |   67 posts since 2015
I have to divide my CDs to get full coverage and contacted Oritani Bank.  They are at 2.10% for 5 year with 6 mo. EWP.
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John Sears
  |     |   67 posts since 2015
Just learned from the bank you have to apply in person.
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Ricochet
  |     |   516 posts since 2010
IY..as always an interesting read.
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InterestYields
  |     |   70 posts since 2010
According to an Ally chat, "the Annual Percentage Yield on our Sixty Month (Five Year) Certificate of Deposit was changed on May 20, 2016" from 2% APY to 1.75% (0.05% loyalty in effect until July 1st when it could be extended again) & the prior change was >20 months earlier "September 5, 2014 from 1.60 to 2.0%"; hopefully this sub 2% APY won't stick around long especially if inflation goes up.  In 2010 my rates were closer to 3% & the reason I renewed eighteen 50K CDs at 2.05% in September was because they offered me a near upfront $3,600 bonus (18 x $200 per 50K CD) which beat other comparable low EWP deals for 1-2 years (Ally's online banking has also improved significantly making POD beneficiary management easy).

Regarding Kearny Bank (currently offering 2.25% APY on a 5 Year CD StarBanking Plus account with a 180 day EWP allowing partial withdrawals*) with many branches in NJ & two in NY was contacted, currently accounts need to be opened in a branch but within months online account opening at kearnybank.com could happen.  

This 2.25% APY on a 5 Year CD StarBanking Plus account requires a "Star Banking Plus Checking with a combined balance of $20,000+ (seniors 55 and over must have $10,000+) in Star Checking Account and any savings account. Monthly direct deposit required" such as at least one monthly direct deposit from a CD interest disbursement of any amount from an external bank otherwise rate is 2.10% APY ($500 Minimum deposit to open).  

They could accommodate up to 6 POD beneficiaries (free trust for account extends FDIC coverage beyond 250K) but recommended that each POD beneficiary get their own POD account unless you have a lawyer/estate executor who the bank would work with because otherwise all listed POD beneficiaries sharing an account would have to go to a branch together after owner is deceased (not yet sure if/how that would change once kearnybank.com gets their online upgrades or if they could be like Ally Bank where I was told checks would be sent to listed POD beneficiaries upon receipt of death certificate).

There is some language in Kearny Bank's deposit terms agreement below of concern that we could discuss but we should also try to understand the bank perspective/rationale:

"Notice of Withdrawal.  Withdrawals from a time account prior to maturity or prior to any notice period may be restricted and may be subject to penalty.  See your notice of penalty for early withdrawal. 

Early Withdrawal Penalties (and involuntary withdrawals).  We may impose early withdrawal penalties on a withdrawal from a time account even if you don't initiate the withdrawal.  For instance, the early withdrawal penalty may be imposed if the withdrawal is caused by our set off against funds in the account or as a result of an attachment or other legal process.  We may close your account and impose the early withdrawal penalty on the entire account balance in the event of a partial early withdrawal.  See your notice of penalty for early withdrawals for additional information."

Post Financial Crisis bank lawyers began empowering their bank clients with restrictive language in the event of unexpected liquidity crises but it's been suggested that access to funds should remain unrestricted assuming no liquidity crises nor outstanding debts owed to the bank or legal-government actions.  They reserve the right to close CDs if early withdrawals become so frequent that CDs are being treated more like a checking account which sounds reasonable but in fairness I'd expect some warning letter before such a bank closure especially since Kearny Bank reserves the right to charge an EWP on not just what was withdrawn but the entire balance subject to an early closure.

Now that Ally Bank is down to 1.75% APY & Barclays is down to 2.05% on comparable 5 yr CDs, the extra 20-50 basis points may make Kearny Bank worth consideration for the depositor not too concerned about such deposit term language being acted on.

Keep in mind where US treasury bond rates are at (5 yr @ 1.39%, 10 yr @ 1.85%, 30 yr @ 2.65%) & notably Germany yields (5 yr @  -0.38%, 10 yr @ 0.14%, 30 yr @ 0.85%).  http://www.bloomberg.com/quicktake/negative-interest-rates is worth a read.

This all raises a larger proactive safety concern, for example are we getting closer to the point where one should keep a couple of months-years of liquid funds out of the banking system entirely as an insurance (given such bank protectionist language & low to potentially negative yields) like in a home/personal safe/s to avoid worst case scenarios where access to funds could be limited by some unexpected liquidity crisis or other freeze beyond the depositor's control?  When it comes to negative yield environments apparently that idea is already being exercised..

More links on the bond vs CD debates:

http://thefinancebuff.com/diversify-bond-funds-with-cds.html
https://www.fdic.gov/deposit/covered/insured.html
https://thefinancebuff.com/why-investors-dont-realize-cds-are-a-better-deal-than-bonds.html
http://blogs.wsj.com/totalreturn/2014/11/03/a-low-risk-route-to-high-yields-on-savings 
http://www.cbsnews.com/news/four-cds-that-protect-against-a-bond-bubble/

"High returns without high risk? 

I remember my mantra that, in efficient markets, you can't get higher returns without more risk. Well, the U.S. Government creates a market inefficiency with FDIC and NCUA deposit insurance.

It's this inefficiency, combined with the pricing of CDs by certain institutions, that gives the small investor a rare opportunity to win no matter what direction interest rates move. To be attractive, a CD must have both a top long-term yield and a relatively painless early withdrawal penalty."

While I obviously agreed with Allan's overall approach here, as I see it market inefficiencies will always exist particularly as long as there are barriers to entry & it's not deposit insurance that creates a market inefficiency in risk:return here ("The FDIC was created by the 1933 Banking Act after the Great Depression to restore trust in the American banking system; more than one-third of banks failed in the years before the FDIC's creation, and bank runs were common") it's that CDs are retail personal banking products consumers can take advantage of (online as well where better rates can be more easily found now) so institutional investors with a barrier to entry there can't bring down those rates as they can with treasuries (e.g. portfolio flights to safety after stock market crashes); Allan Roth does however mention:

"A win-win no one will tell you about

These great CDs exist because no one has the incentive to tell you about them. They don't pay commissions, and any planner charging a percentage of assets can't use these vehicles to get their take. And it's lucky for us that they don't because, if they did, these rates would disappear as soon as advisors steered billions of dollars toward these products"

If anyone has constructive thoughts or experience with Kearny Bank or low EWP+yield comparables, let us know : ) 
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39
InterestYields
  |     |   70 posts since 2010
I moved most of my Ally savings account funds back to the No Penalty CDs given the fixed rate increase mentioned in https://www.depositaccounts.com/banks/ally-bank/offers/. Interestingly their 11 month No Penalty CD now pays 20 basis points more than their 12 month penalty CD (https://www.ally.com/bank/cd-rates)

 Always keep in mind the inflation adjusted real rate of return. There's an expectation that interest rates would increase as inflation rates continue to rise particularly in the context of the FED's dual mandate of price stability & maximum employment ( https://www.federalreserve.gov/faqs/economy_14400.htm ) . Ken, it would be interesting to see an article or post on CDs & bank products relative roles in the quantification of the money supply:
 
https://en.m.wikipedia.org/wiki/Money_supply#Empirical_measures_in_the_United_States_Federal_Reserve...
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25
InterestYields
  |     |   70 posts since 2010
Since I didn't expect Ally's No Penalty 1.25% APY 11 month CDs to last given they were yielding the same rate as their 18 month 5K-<25K CDs with a 60 day Penalty, on Jan 1st (when all my 5 year CDs had posted their accrued interest except for these 11 month CDs) once confirming their No Penalty CDs were still at 1.25% APY, I starting closing them to prove how liquid the principal+interest are by transferring to my Ally savings or checking account.  I then reopened them with a start date of Jan 1 funding them all except for one because I knew I'd have 10 days to fund it at that rate should the rate drop which as we know did a few days later on 1/4.  On Jan 10 I funded the last No Penalty 11 month CD with its 10 day best rate guarantee of 1.25% ("If you fund your CD on the same day you open it or on one of the next nine calendar days, you will receive the highest interest rate and APY we paid for that CD term and balance tier during that ten-day period").  

Never thought I'd be that eager for <2% rates but it was the best fixed rate, no penalty, near liquid vehicle ("does not allow withdrawals during the first six (6) calendar days following the date the account is funded") particularly when transferring to another Ally liquid account.  My blended rate of all funds at Ally considering my renewed 5 year CDs are still >2% but I'd love to see at least 2.4% 5 year (with relatively low penalty) CDs again soon but not holding my breath for those just yet (or those..dreamy..near 3% APYs Ally offered me in 2010;)'.  Hard to even imagine >5% APY CDs of the past in this country returning (beyond some financial crises of spiraling inflation) in the context of our national debt.

I'll stay tuned to https://www.depositaccounts.com for not just the best deals in "the new normal" low rate environment but hopefully a growing focus on liquidity costs in terms of penalties, account type holds, transfer speeds etc since yields are still so low we should at least be in a low cost position to better utilize our own funds for more fulfilling opportunities when they arise..
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24
Ricochet
  |     |   516 posts since 2010
Good to hear from you again.
Played that very well.
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6
Bozo
  |     |   1,375 posts since 2011
I love to read your posts. You are more insanely obsessed with fixed-income returns than I am, and I thought I was weird.
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1
InterestYields
  |     |   70 posts since 2010
Ally.com really makes account management far easier these days (insane obsession not required ;-), they don't have the highest yields currently but their online features continue to improve.  Since you brought up fixed-income, Ally's terms relatively reduce fixed income risks (e.g. https://en.wikipedia.org/wiki/Fixed_income#Risks & https://www.investor.gov/introduction-investing/basics/what-risk ).

Investment yield considerations should always be had in the context of full exploration of risks (risk:reward ratio analysis to inform investment decisions).  

Regardless of your risk tolerance, I think we all here should endeavor for the highest possible returns at the lowest possible risks.  If however markets are getting ever more efficient, will returns get ever smaller pushing investors toward greater risks (e.g. > speculation-de facto unaccountable market participants)?  Markets are not always as efficient as some (e.g. https://www.investor.gov/introduction-investing/basics/role-sec) would have you believe (e.g. barriers to entry) yet market inefficiencies can offer up interesting opportunities.
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19
Ricochet
  |     |   516 posts since 2010
To quote Prez #45
IT's Rigged.
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2
InterestYields
  |     |   70 posts since 2010
I'll try to avoid overindulging in politics here, beyond some economic effects, with a recognition that fiat currency could be argued to be political given its value is based on government actions & its perceived role in the global economy.. I did post at https://www.depositaccounts.com/blog/fed-hikes-deposit-rates.html#5 & https://www.depositaccounts.com/blog/fed-hikes-deposit-rates.html#6 

Regarding: https://www.depositaccounts.com/banks/ally-bank/offers/

"The 5-year CD used to require a $25k minimum to qualify for a 2.00% APY. Smaller balances earned lower rates. That has been removed, and now there is no minimum balance to qualify for the 2.00% APY. Note, Ally started rate tiers in 2015, and the rate tiers still apply to some CDs."

No doubt I'd love to see asap Ally's 5 yr CD rate increase to at least 2.4% APY but more specifically to see this 5 yr CD rate change in action over time click: 

https://www.depositaccounts.com/tools/ewp-calculator.aspx?ids=5207,5207,5207&apys=,1.95,1.9 (where first column is the 2% APY that used to apply only to a CD balance of $25,000+ but now per https://www.ally.com/bank/high-yield-cd/?CP=142836828;0&CONBRR&term=60 applies to any amount, the second column is the 1.95% APY that used to only apply to a CD balance between $5,000 - $25,000 & the third column is the 1.9% APY that used to only apply to a CD balance under $5,000).

Ally may have noticed that people besides myself began opening 5 yr CDs since the original 3/3/17 rate increase without yet funding them because a 2% APY rate only for minimum balances of $25,000 wasn't compelling enough in a rising rate environment but now that there aren't different tiered rates for the 5 yr CD I will more likely start funding them or opening new 5 yr CDs at the under <$5,000 level. Ally does not allow partial withdrawals but its relatively reasonable EWP could make it possible to effectively use it for CD laddering, particularly allocating smaller funds when there is no incentive (rate increase-bonus) to go to $25,000-$100,000 jumbo amounts.  I already have many Ally CDs that yield more than having left them in a totally liquid account regardless of Ally's early withdrawal penalty with greater potential to earn its full yield the longer it's held. In practice I've never had a problem closing Ally CDs despite the Ally consent language change in their deposit agreement (see https://www.ally.com/resources/pdf/bank/ally-bank-deposit-agreement.pdf, I've been informed the Ally consent language was added for extraordinary circumstances such as an unexpected economic liquidity crisis); if anything my experience has been it's increasingly easier-faster to immediately close a CD early yourself online with the exact current redemption amount listed to facilitate decisions, with funds immediately available (minus EWP) in an Ally checking or savings account for desired redistribution.

I still prefer Ally Bank because Ally not only has the lowest EWP-early withdrawal penalty of 5 months for a 60 month CD but allows up to 10 ITF/POD beneficiaries-(also extending FDIC coverage potentially to $2,500,000 for an individual account owner that can be modified easily when logged into Ally.com accounts while Capital One Bank has a close 6 month EWP but does not yet offer non-IRA beneficiaries setup. Capital One used to allow accounts to be titled to a formal revocable trust which tends to be significantly more costly & time consuming to formulate-modify but last week a CS agent told me that stopped being possible June 22, 2016, however Capital One is working on bringing POD beneficiaries to all their accounts (no ETA) at which point I'd more seriously consider them.

Even ACH transferring funds externally at Ally with many other banks can be seen within 12 hours of sending the instruction online (e.g. 7 PM online instruction for Citibank-6AM funds available) with funds being withdrawn & credited the same morning. Synchrony Bank also currently has a comparably good rate but they doubled their EWP for 60 month CDs to 12 months so I personally would no longer consider them because you may need (relatively) non-punitive access to your own cash. See link below for side by side comparisons:

https://www.depositaccounts.com/tools/ewp-calculator.aspx?ids=5207,5207,5207,265245,264557&apys=,1.9...

Interesting excerpts from a March Ally Chat:

"Here is a list of the rates and dates the rate changed for the highest tier for the five year CD:

March 3, 2017 - 2.00%
May 12, 2016 - 1.75%
September 6, 2014 - 2.00%
October 18, 2013 - 1.60%
January 20, 2012 - 1.80%
October 10, 2011 - 2.00%

Prior to October, 2011, the rate was consistently above 2.00%.

We have been in business as Ally since 2009."

Interesting historical links worth a look:

https://www.ally.com/about/history/

https://www.depositaccounts.com/blog/2009/05/american-bankers-association-urges-fdic.html

https://www.depositaccounts.com/blog/2009/06/rate-cuts-at-ally-bank.html

https://www.depositaccounts.com/blog/2009/06/fdic-starts-to-crack-down-on-ally-banks.html

https://www.depositaccounts.com/blog/2009/10/gmac-reported-to-have-agreed-to-deposit.html

https://www.depositaccounts.com/blog/2010/11/risks-and-benefits-of-longterm-certificates-of-deposit....

https://www.depositaccounts.com/blog/2011/02/how-ally-bank-has-the-best-cd-rates-for-most-cd-maturit...

https://www.depositaccounts.com/blog/2012/10/ally-bank-changes-deposit-agreement-covering-cd-early-w...

https://www.depositaccounts.com/blog/2013/10/ally-bank-increasing-early-withdrawal-penalty-on-new-lo...

https://www.depositaccounts.com/banks/ally-bank.html#reviews

P.S. - I noticed mobile devices may need to be in autorotate landscape mode to fit all content here on the screen:)
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lou
  |     |   999 posts since 2010
Your example of 10 POD beneficiaries equaling $2.5 million of FDIC coverage is incorrect. The FDIC calculator does not allow you this many beneficiaries. After 5 beneficiaries, the rules become extremely complicated, meaning you shouldn't try it.
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InterestYields
  |     |   70 posts since 2010
What extreme complications are you referring to beyond 5 beneficiaries Lou?

See sample FDIC report for 1 living account owner with 10 living POD beneficiaries with equal interest insured for $2,500,000.00 at http://docdro.id/Peh1ZrQ generated by the FDIC calculator at https://www.fdic.gov/edie/calculator.html.

It does ask: "Do all of the named beneficiaries have an equal interest in their respective ITF/POD/Living Trust Accounts?" The report also states: "This calculation assumes that all of the above accounts are on deposit in an FDIC-insured bank, and that the account owners do not have accounts other than those listed above at Ally Bank (Cert #57803)" so it's worth knowing how much your beneficiaries could have at the same bank (if it's more than zero generate the appropriate report at https://www.fdic.gov/edie/calculator.html). https://www.ally.com/bank/fdic/ also has some examples.
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InterestYields
  |     |   70 posts since 2010
Couldn't post relevant-useful reply links at https://www.depositaccounts.com/blog/cd-rates-survey/#comments so I'll try here:

While I'm tempted to discuss politics here, it can get extra polarizing these days;)..so I'll add the following links for now:

https://www.investopedia.com/ask/answers/032715/what-difference-between-assetprice-inflation-and-economic-growth.asp

https://tradingeconomics.com/united-states/government-debt-to-gdp

For fun-well maybe;):

https://www.thebalance.com/us-debt-by-president-by-dollar-and-percent-3306296

https://www.thebalance.com/deficit-by-president-what-budget-deficits-hide-3306151
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InterestYields
  |     |   70 posts since 2010
After the last December rate hike, based on trends from Treasury Yields & Fed funds futures' probabilities of future rate hikes, I went long ~90% 5 yr CDs (e.g. 3.15% @ Ally with 5 mo EWP) & ~10% 14 month (e.g. 2.9% @ Ally with 2 mo EWP) on ~ 1.1M with interest disbursing monthly into Savings for reinvestment should rates increase, or no longer disbursing should rates drop for compounding at higher than available rates. While I'm not holding my breath, I'll still hope for surprise rate increases, low EWP CDs offer both downside+upside protection. Personally I'm willing to accept Ally's reasonable but non-leading rates for the tradeoff of relatively low EWPs for real estate or other investment (with intrinsic+income generating value) opportunities (+ Ally's impressive beneficiary management).

The Fed's next rate move is more likely a cut than a hike: Economist Mohamed El-Erian

"The Shareholder Value Myth" Professor of Corporate and Securities Law: Lynn Stout ~ 6 min YouTube clip

So what might have happened to stock markets in December 2018:

https://www.factsandarts.com/current-affairs/complacency-will-be-tested-2018

"From 2008 to 2017, the combined asset holdings of central banks in the major advanced economies (the United States, the eurozone, and Japan) expanded by $8.3 trillion, according to the Bank for International Settlements. With nominal GDP in these same economies increasing by just $2.1 trillion over the same period, the remaining $6.2 trillion of excess liquidity has distorted asset prices around the world.

Therein lies the crux of the problem. Real economies have been artificially propped up by these distorted asset prices, and glacial normalization will only prolong this dependency. Yet when central banks’ balance sheets finally start to shrink, asset-dependent economies will once again be in peril. And the risks are likely to be far more serious today than a decade ago, owing not only to the overhang of swollen central bank balance sheets, but also to the overvaluation of assets. "

Full macroeconomic article Complacency Will Be Tested in 2018 from Dec 2017 is still worth a read with potential political-economic-central bank implications: https://www.factsandarts.com/current-affairs/complacency-will-be-tested-2018 Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of a new book Unbalanced: The Codependency of America and China.
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NeilStanley
  |     |   40 posts since 2013
You are so wise to realize that the early withdrawal penalties are just as important as the APY. Now some banks are offering "smart CDs" that right-size the penalty. This means that if interest rates decline and the bank can replace the money with less costly interest the banks not only don't penalize the depositor, they pay more than principal and interest if the depositor wants to cash out early. Most of them cap the early withdrawal penalty so that it is never more than the penalty on conventional CDs, but it can actually pay you more for withdrawing early when interest rates decline. It makes the CD grow in value like a bond when interest rates drop. I know of an account opened last summer at 2.39% APY for 37 months that could be redeemed today for a 3.52% net yield! Investors need to consider the full value of these accounts and not just APY.
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AnnO
  |     |   129 posts since 2018
Which banks are doing that, NeilStanley?
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CTM
  |     |   179 posts since 2010
AnnO -

Banks I can find offering this product, "CDTwo", belong to the TS Banking Group. A Neil A. Stanley is their Chief Credit Officer.

I believe the generic product is called "CoreCD", a trademark of The Core Point.
A Neil Stanley is the CEO / Founder.

I notice these posts when interest rates are declining, but I suspect that people are not breaking existing CDs to chase lower rates.

This also seems to be a first cousin to the dreaded MVA (Market Value Adjustment) clause found in so many annuity contracts.
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