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Ally Bank CD 60-Day Early Withdrawal Penalty
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At most banks, if you close a CD before it’s maturity period you pay a penalty of 90 or 180 days. 90 days, or three months, is the penalty for shorter CDs, generally less than 12-months. The 180 day penalty is reserved for CDs with maturity periods of 12-months or more. What makes Ally Bank rare isn’t the clever advertisements or the great customer service (I’ve used their online chat features 3-4 times in the last few days, it’s absolutely wonderful), but higher rates and one of the most generous CD termination penalties on the planet.
The penalty is only 60 days of interest, regardless of the maturity of the CD.
The 60 day penalty is based on the APY and your starting balance. In other words, you don’t lose the “last 60 days of accrued interest,” you lose 60 days of interest as calculated by the APY on your initial deposit. I don’t know if every bank calculates the penalty this way but an Ally Bank CSR said that’s how they do it.
Such a short penalty means you can get an effective APY of 2.1387% on a CD of only 7 months right now. If you wait a year, you get close to 2.50% APY (2.4987%), which is a fantastic rate right now. Compare these to the best CD rates and almost nothing compares.
Get the Spreadsheet
I created a spreadsheet to help you calculate this yourself. What I’m hoping to get from you all is a double check of my math to ensure what I’ve done is correct!
How to Use the Ally CD Spreadsheet
Set the values highlighted in yellow:
- For Rate and APY, go to Ally Bank and get their current 60-month CD rate. At the time of this writing, the APY was 2.99% (APR 2.95%).
- Starting balance refers to how much you will deposit into the CD.
- Penalty refers to the number of days of the CD penalty. In Ally’s case, it’s 60 days. You can change this to compare the rate against other banks with different penalty periods.
The number in the APY value is your effective APY if you close the CD at the start of that month. So if you close a CD at the start of month 7, you’d get an effective APY of 2.1387% over the last 7 months.
About the Ally CD Spreadsheet
The bold labeled columns are self-explanatory but the unlabeled ones are intermediate mathematical steps to convert the dollar yield into a annual percentage yield figure you can use to compare against other CD rates.
“TIP” stands for total interest percentage. I take the total interest earned and divide it by the principal, giving you a percentage yield over the period. So the value in the Month 3 column is the yield over 3 months. “MR” stands for monthly rate, which is a calculation of the interest earned each month over that period of time. APY is then calculated using the MR figure (MR^12).
The penalty value is calculated from this equation, provided by an Ally Bank CSR:
(Account Balance) x (Interest Rate) / (365 days in one year or 366 days in a leap year) x (# of days at that balance)
For simplicity I just assumed 365 days. The account balance refers to your starting account balance, the interest rate is your APY, and the # of days at that balance is 60 because it’s a 60 day penalty.
One caveat – this spreadsheet calculates interest on a monthly basis, whereas Ally Bank accrues interest daily. This means actual yields are going to be slightly higher than what’s calculated in our spreadsheet but not so much higher it’ll noticeably affect any decisions.
CD Renewals
What makes this offer especially juicy is that if you have a CD maturing soon, you can renew it and take advantage of Ally banks’ 0.25% interest rate increase. When you renew a CD, you can change the maturity period and the amount in the CD. I have a 12 month CD renewing soon and I increased the balance and made it a 60-month CD.
Is the spreadsheet accurate? What do you think of this offer?
{ 22 comments, please add your thoughts now! }
Thanks for posting this. Thanks for pointing out that the interest is compounded daily instead of monthly. It could really make a difference.
You need to update the Penalty column to be =(B9*$B$4/365*$B$6) instead of =(1000*$B$4/365*$B$6). I do not think the penalty should be the same all the way down the line.
According to the CSR, that’s how the penalty is calculated (on the opening balance). I asked very specifically because it sounded wrong… I thought, as you did, it should be calculated based on the current balance, not the opening balance, but he insisted that it’s based on the opening balance.
I just spoke to a floor supervisor, Dawn S___klosky (sorry didn’t get the spelling), and she told me that the penalty is the last six months of interest.
No one’s probably reading this old post and comments anymore, but there is an error in the spreadsheet where it doesn’t consider the opening balance in it’s calculations. Will’s post is close since it takes the current balance into account, but apparently Ally goes by the opening balance, not the current balance.
The formula for the penalty assumes the balance is $1000. If you enter a larger opening balance in B5, the spreadsheet doesn’t adjust the penalty. So it’d show the same penalty for $1000, $10000 or $100000. What you need to do to fix this is to change every cell in the Penalty column to =(B5*$B$4/365*$B$6). That will allow the penalty to adjust with the opening balance in cell B5. The easiest way to do this is to do find/replace with the find value being =(1000*$B$4/365*$B$6) and the replace value being =(B5*$B$4/365*$B$6). Please let me know if I’m incorrect.
How has Ally Bank stood rate wise to the competition lateley?
Still pretty solid as far as I know.
I have done this on several of the No Penalty CDs I took out 9 months ago (based on a article here). Now I am curious to see if you open a bunch of 3 month CDs with a dollar each will they still give you the renewal bonus of .25%? This would be a quick and easy way to always have the bonus available and then you can add money and change terms or just pull your dollar out. I call dibs on the new catch phrase of “Renewal Bonus CD Ladder”.
Yeah I think this is an advantage I hear a lot about with Ally Bank.
ally penalty is the last 60 days of accumulated interest, which would make it different as days go by.
I spent the last 3 days talking with Ally CSRs and supervisors to get them to confirm or deny the accuracy of your spreadsheet. The answers from CSRs were wildly inconsistent, and alarming. Two supervisors , in writing (e-mail) told me the penalty on a 5 year CD was fixed at $4.78 per thousand orinially invested, and would never change for the term of the CD. Supporting your spreadsheet. Another supervisor told me that her peers were wrong, and that the penalty is calculated in the balance at the time of early withdrawal. If she is correct, then my calculation is that the post penalty yield will be 2.43%, regardless of when you take your early withdrawal. The only way you get 2.91 is if you hold to maturity.
The ally Ally CSRs are very confused and inconsistent on the penalty calculation. Makes you wonder what will really happen when you request an early withdrawal!
The penalty of $4.78 per thousand is exactly 60 days worth of interest and should be fixed from day 1 to the day prior to maturity.
It’s also such a low amount compared to the $14.50 per thousand difference per year between a 1 year and 5 year CD, that this totally changes the idea of CD laddering, until penalties go back up or short term rates and long term rates get closer again.
I agree with Will’s (6/14) formula to correct column C, the Penalty. It should be based on per thousand of the opening balance. For example, on your spreadsheet, if you change the opening amount from $1000 to $100,000, the Penalty is still $4.92. To address Will’s second point, the value would indeed be the same for the whole column if you are using the “penalty based on opening balance” model, as per Bill’s comment (6/20).
Thanks for getting this spreadsheet started – very helpful!
you: i want to know the details about 60 month cd
you: specially how the penalty is calculated for early withdrawal?
CRS: Hello! The early CD closure penalty is 60 days worth of interest.
CRS: Once the CD is opened and funded, funds cannot be added to it until maturity.
you: the 60 days is first 60 days or the last 60 days?
CRS: It’s not a specific timeframe of days. We calculate how much interest you would earn each day and multiply it by 60.
you: so it’s compounded interest rate?
CSR: Yes, interest is compounded daily for all of our accounts.
I don’t think that any of the statements are conclusive. Why can’d someone Ask Ally
if you deposited 1000 in a 5 year cd what would the penealty be if closed at the end of
month 12. I would hope the bank would respond
with a conclusive number. I just got off the
phone with them and they say that its 2 months
interest period. but on thier website it states.
However the link to Deposit Agreement does not
work.
Will I be penalized for an early withdrawal from my Certificate of Deposit (CD) before it reaches maturity?
For all Ally CDs, except the No Penalty CD, you will be charged an early withdrawal fee equal to 60 days’ interest if you withdraw your money before the CD matures. This fee is calculated using the interest method detailed in your Deposit Agreement, and is first deducted from the interest and then—if necessary—the principal. There are couple of exceptions: We will waive the early withdrawal fee if the depositor should pass away or be judged legally incompetent
Nice work on the spreadsheet, but you did a little more work than you needed to. You don’t need the TIP and MR columns to calculate APY.
You can use the following formula on line 11 (month 2) for APY:
=(D11/$B$5)^(12/A11)-1
..and copy down.
On an aside, comparing CDs is a pain for me because you can’t get conclusive answers to the precise penalty amounts, e.g:
1. Is the penalty simple or compound interest
2. Is it based on the original amount or calculated using most recent interest amounts that would have been earned.
Many agreements say simple interest but that doesn’t provide enough information. I’d be inclined to assume it is x-months of the most recent interest accruals unless I could find proof to the contrary. But that’s just me.
Oh, one other comment. Line 69 (month 60) is wrong because there is no penalty once the CD is held to completion. At that point the APY will, obviously, be 2.99% rather than 2.90%.
Here’s what ALLY Customer Care said today:
“Thank you for choosing ALLY Bank. Please be advised that ALLY Bank does reserve the right to delay, discontinue, or make changes to accounts or services which will effect your accounts. You may not get advanced notice of these changes when they are made. This includes changing the penalty on an account when closed early. These rules can be found on page 10 of your deposit agreement book number 34.”
Regardless, the terms of a CD remain unchanged for the duration of the certificate. I don’t think the banking commission would allow them to change the penalty for established CDs!
I don’t know if anyone is still watching here, but…
I have a CD at Ally. On Ally’s Web site, my account shows a value called “Current Redemption Amount” which is the amount I would receive today if I closed the CD early.
Using that number, I can verify that the penalty is based on the *original* amount and 60 days simple interest as Jim says.
Because of the language of the Ally Deposit Agreement, cited in the Anonymous post, I’m not going to rely on the 60-day interest penalty provision in rolling over a number of CDs at Ally this month. I believe Ally has to give advance notice of redemption penalty changes under the FDIC’s Truth-in-Savings regulations, but it still seems to me that it can pull the rug out from you by raising the penalty after the CD is established, forcing you to “close” the account and pay the old penalty sooner than you wanted to. And, with the Fed printing money like there’s no tomorrow, who know what can happen, even a few months down the road.
Was getting ready to dump over 100K into ally 5yr cd, but after what anonymous found, it is not entirely clear that the 60 day rule is locked in for the term…..if they change it up they could bury it in a massive “account change” notice, that you might miss….starting to sound too risky..