Comments on: Ally Bank Savings & CD Rates Confuse Me

By: Mari

Mari — Fri, 19 Feb 2010 15:01:12 +0000

Totally agree with you! Why not simplify?

By: Smart Banker

Smart Banker — Sun, 17 Jan 2010 21:55:05 +0000

The rates for CDs are fixed while the savings account rates move. Most people who invest in CDs do not have the time keep track of the interest rates, and might actually be earing lower rates over the term compared to a savings.

With the fed rate at 0%, the only way savings account rates can go is up. If you follow the rates closely, then you can get on a CD and liquidate to a savings when that happens.

Multiple CDs are REQUIRED if you want to liquidate part of the funds – cannot withdraw part of the money as somebody pointed out.

By: Kate

Kate — Tue, 01 Sep 2009 17:25:42 +0000

The reason banks do this is they want to match deposits with their funding needs for loans. Right now, they clearly need short-term funds and don’t need to have 9 month money.

By: Jim

Jim — Sun, 30 Aug 2009 13:25:00 +0000

When you withdraw money from a CD, you have to close the entire CD. Since the rate offered on a CD can change, you could be closing one large 2% CD only to reinvest the difference in a 1% CD.

There’s very little paperwork, it’s all electronically managed, so I don’t see a lot of hassle there.

By: Cynthia C

Cynthia C — Sun, 30 Aug 2009 12:32:46 +0000

Why open multiple CDs when you can just withdraw the amount you desire from one big CD? There probably are no limitations on withdrawls and we know there is no penalty, so why complicate your life by creating all that paperwork to keep track of?

By: CuriousAG

CuriousAG — Fri, 28 Aug 2009 13:13:44 +0000

Did you also notice, Ally offers 1.65% APY on 6-month CD while 1.55% APY on 9-month CD, this is the weirdest of all I have ever seen.

By: Ken

Ken — Fri, 28 Aug 2009 13:01:37 +0000

Be careful about opening up too many CDs if you use funds from the savings account. Each transfer from the savings to the CD counts against your 6-per-month withdrawal limit.

By: Tyler@FrugallyGreen

Tyler@FrugallyGreen — Fri, 28 Aug 2009 06:24:28 +0000

It has to be marketing. I’ve noticed this over the last year or so at MANY big financial institutions as well as smaller community banks and credit unions.

The risk/reward structure just doesn’t match up with common sense.

By: freeby50

freeby50 — Thu, 27 Aug 2009 23:45:53 +0000

It doesn’t make sense to me from a financial picture.

I’m guessing there is some marketing reason for it. They’re probably trying to push people into one kind of account or another for some reason thats not obvious to us.

By: Neil

Neil — Thu, 27 Aug 2009 21:37:58 +0000

I’ve been having the same issue with ING Direct for several months. Their GICs for less than 18 months have had lower interest rates than their savings accounts since the prime rate bottomed out at 0. Maybe before…I only became secure enough to consider locking in about when interest rates bottomed.

The only reason long term deposits should ever be lower than a flexible savings account is if the bank’s risk managers think that interest rates will drop substantially enough during the deposit period to wipe out the security advantage they get from the lock-in. Currently that’s impossible, so I really don’t get it.

By: Jim

Jim — Thu, 27 Aug 2009 21:16:00 +0000

Ultimately the cost will be in the time it takes to open each of these accounts, which is only five or ten minutes each once you already have an account there.

By: Min

Min — Thu, 27 Aug 2009 20:51:00 +0000

Even better, buy $2500, $1250, $625, $312.5, $312.5 CDs. That way, you get finer granularity on how much you can take out.

You can make the granularity even finer by increasing the total number of CDs you buy. And the math simpler if you buy CDs that sum up to $100*((2^x)-1) where x is any positive integer.

Anyway, I’ve seen this kind of trend at other places and am also curious to how the banks are coming to these decisions. How do these make financial sense?

By: Rae

Rae — Thu, 27 Aug 2009 20:39:58 +0000

My mostly uneducated guess would be that they’re currently trying to seduce new customers with the wonky rate schedule, but will later readjust it to fall in line with what you described as “normal.”

I know on occasion ING Direct will set up their CD rates so that shorter-term or mid-term CDs have higher rates than the long-term ones. I’ve always assumed they do this to target people who aren’t currently using CDs to get started, and then hopefully continue to use them (after the rates have been readjusted). For instance, right now, a 6-month CD is 1.65% which is higher than everything but 48-month+

ING sticks to the CDs for the most part there, but same concept for Ally – get customers in with good rates and keep them after the rates normalize.