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Ally’s Curious CD Rates Schedule

I’ve started moving everything I need to in order to make Ally Bank our main checking account, away from Bank of America, and I was looking at their certificate of deposit rates [3] when I noticed something very curious. As of November 1st, 2011, the online savings account had an APY of 0.85%. That APY is higher than the yield on the 3-month, 6-month, and 9-month CDs at Ally. Those rates are 0.39%, 0.75%, and 0.74% APY respectively (yes, the yield on the six month is fractionally higher than the nine month CD).

As an aside, I found it strange that the APY on the 9 month CD was lower than the 6 month CD – typically APYs go up as the lock in period gets longer. On Oct. 31st, the difference was even greater.

What this means for savers is that unless you’re willing to tie up your money for at least a year (well, 11 months, because the 11 month no penalty CD is yielding 0.95% APY), you might as well keep it in a savings account [4].

Why do they do this? I asked a representative using their chat tool and their response was:
“Hello, Jim! Rates are determined by a myriad of disciplines including, but not limited to: what the marketplace and industry are doing, the climate of the economy, and Ally Bank’s management. Our CDs offer fixed rates rather then the variable rate with the Online Savings account which is subject to change daily.”

So there are a lot of different factors that come into play and the end result is what we see – a most curious CD rate schedule. The rates of the 3-9 month CDs might be lower and the rates of the 11month and 12 month CDs aren’t much higher than a savings account, but those rates are locked in.

If you’re curious, the rates at ING Direct are even worse relative to the savings account. The savings account earns 0.90% APY, which beats all but the 60 month CD rate. That’s right… at ING Direct, to beat the online savings account with a CD, you need to lock it in for five years. And you don’t even get the benefit of Ally’s favorable CD termination penalty [5]!