Ally No penalty CD vs Savings acct.

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leehsm
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Ally No penalty CD vs Savings acct.

Post by leehsm »

I am considering using the Ally 11 month No Penalty CD @1.14% or their SavingsAcct. @ 1.04% for cash that may not be neeeded for an extended period of time. Would appreciate any comments on those that have used either or both accounts.. I understand the CD does require it be completely liqudated if closed, where the Savings Acct allow up to 6 withdrawals per month,however the rate can be changed at any time. Thanks, Lee
yosef
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Re: Ally No penalty CD vs Savings acct.

Post by yosef »

leehsm wrote:I am considering using the Ally 11 month No Penalty CD @1.14% or their SavingsAcct. @ 1.04% for cash that may not be neeeded for an extended period of time. Would appreciate any comments on those that have used either or both accounts.. I understand the CD does require it be completely liqudated if closed, where the Savings Acct allow up to 6 withdrawals per month,however the rate can be changed at any time. Thanks, Lee
Keep in mind you can open multiple CDs in any denomination you choose. So if you have $10k you could do 10 $1k CDs if you want to mitigate having to liquidate too much. Also, considering Ally's early withdrawal penalties are so low, you might want to consider using 5 year CDs instead. Unless you break them very early on the net rate would likely be much better than the 11 mo CD.
john94549
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Post by john94549 »

Cash not needed for an extended period of time should most assuredly be in a CD ladder, not in a savings account. Keep in savings what you might need over the next year. Take the rest and consider a five-year ladder, with an equal amount in each rung. As each rung matures, re-invest the proceeds (less whatever you might need to replenish your savings account) in a five-year CD. You'll be amazed at how this increases your yield over time.

Yosef's idea of buying the Ally 5-year and breaking it is worthy as well, but you have to make sure you can do a partial break and pay the penalty on only the partial. I haven't studied the Ally Truth-in-Savings Disclosure to see what their position is on this.

There are many discussions of the pro's and con's of breaking Ally's 5-year CD over at depositaccounts. Ken (the blog owner) uses Boglehead methodology to analyze various scenarios.
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archbish99
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Post by archbish99 »

You can't do a partial break, but as he suggests, you can spilt up the money into 10 $1k 5-year CDs and only break as many CDs as you need.
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Post by john94549 »

archbish99 wrote:You can't do a partial break, but as he suggests, you can spilt up the money into 10 $1k 5-year CDs and only break as many CDs as you need.
You'd have to run the numbers, but my tummy tells me the archbishop's idea is the best, unless you go with a bank like USAA, which charges the penalty only on the amount of principal withdrawn (i.e., partial breaks are permitted and no penalty applies to withdrawal of accrued interest*). Ally's rate and USAA's rate on a 5-year CD are virtually identical. So, you could go with 10 5-year CDs from Ally or one 5-year CD from USAA and get the same result.

It gets complicated, sometimes overly-so. After all is said and done, with this low rate environment, sometimes the simplest is the best. My apologies to Yosef, as I thought he was suggesting buying one 5-year.

All this assumes rates will stay really, really, flat for an extended period. In a rising rate environment, you'll kick yourself if you're locked into 10 (or one) 5-year CDs at these low rates. Which is why I suggested the ladder in the first place. Whether a ladder or a one-time buy long (5-year) generates more yield is an issue of how far, how fast, interest rates go up (or down). On that issue, I have little guidance.

*Admittedly, this is not entirely clear from USAA's disclosure, but I did confirm it with USAA. Their computer is set to LIFO all partial withdrawals. In English, if you have $10,000 in accrued interest on a CD and want to make a $10,000 partial withdrawal from that CD, there is no penalty whatsoever.
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Kevin M
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Post by Kevin M »

I've opened many 5-year CDs at Ally, with intention of breaking, paying 2 month penalty, and reinvesting if rates rise significantly or if I need the cash. I also have savings and checking accounts there, so accepting lower rates so don't have to worry about breaking the CDs for quite some time. Checking pays a bit less in interest (if you keep min $15K), but of course can do as many withdrawals as you want, then top off checking from savings once or twice a month.

I've recently started opening some of the 4-year raise your rate CDs (2 increases allwowed over 4 years) in an IRA account, along with some more 5-year CDs. 4-year CDs paying a little less than 2% vs. about 2.3% for 5-year. Again, an alternative in case there are any issues with breaking the 5-year CDs. I'm using a ratio of 2 to 1 in the IRA for 5-year vs. 4-year CDs, for no good reason other than I'm not too concerned about not being able to break the 5-year CDs, but just enough to want an alternative just in case.

Kevin
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Gray
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Post by Gray »

I agree with what folks have written about the Ally 5 year CDs. I'm buying one for $20K every 4 months as I save for a house down payment which I intend to use when I have a bit over $300K set aside in 2016.

I normally bank with USAA, but would never consider buying a CD with them versus Ally--simply based on the generous early withdrawal terms Ally has.
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Post by john94549 »

Gray wrote:I agree with what folks have written about the Ally 5 year CDs. I'm buying one for $20K every 4 months as I save for a house down payment which I intend to use when I have a bit over $300K set aside in 2016.

I normally bank with USAA, but would never consider buying a CD with them versus Ally--simply based on the generous early withdrawal terms Ally has.
Gray, I have an IRA CD with USAA coming due the end of this month, and I must admit I'm torn between just biting the bullet and rolling it over or (alternatively) moving it to Ally, in multiple tranches. If I have one CD at USAA and rates spike, I'm stuck. If I have multiple CDs at Ally and rates spike, I at least have options. One thing folks are always concerned about over at depositaccounts is a change in the early-withdrawal penalty mid-term. To say that posters over there are paranoid over the issue would be an understatement. Just search for the threads on Fort Knox FCU.

My main concern about a switch to Ally (with multiple 5 year CDs) is paperwork. Do I need ten friggin different IRA accounts for 10 different CDs? I wonder, when all is said and done, even if rates "spike", if it would be worth the hassle. Stated another way, I'm basically lazy. I wonder how far rates would have to spike over the next five years to motivate me. I have yet to answer my own question.
FedGuy
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Post by FedGuy »

john94549 wrote:My main concern about a switch to Ally (with multiple 5 year CDs) is paperwork. Do I need ten friggin different IRA accounts for 10 different CDs?
And will you get 10 different 1099s?
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archbish99
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Post by archbish99 »

Probably multiple 1099s. Their online application allows you to fill out the application once for up to (I think) 5 accounts at a time, though. I would assume their IRA is similar. Worth exploring.

And I also generally bank with USAA. True, their rates are virtually identical, but their ~6 month penalty on breaking a CD is painful to contemplate.
john94549
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Post by john94549 »

archbish99 wrote:Probably multiple 1099s. Their online application allows you to fill out the application once for up to (I think) 5 accounts at a time, though. I would assume their IRA is similar. Worth exploring.

And I also generally bank with USAA. True, their rates are virtually identical, but their ~6 month penalty on breaking a CD is painful to contemplate.
The penalty for breaking a 7 year CD is even more painful (a year's interest). Which is why I confirmed with USAA this week they LIFO'd partial withdrawals. The good news: (a) they LIFO, and (b) they allow partials.

They also answer the phone, with a live person, so long as you press "0". But then, I've been with USAA since I was a boot Ensign, about three wars ago. Go Navy!
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Kevin M
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Post by Kevin M »

john94549 wrote: My main concern about a switch to Ally (with multiple 5 year CDs) is paperwork. Do I need ten friggin different IRA accounts for 10 different CDs?
You open one IRA "plan" for each type of IRA (e.g., traditional, Roth). Each CD has it's own account number, within the plan, but this also is true for other institutions (e.g., PenFed).

You can open multiple IRA CDs at once online, then mail the form to do the transfer. I sent in a single 1-page form to transfer assets from another IRA to fund 2 Ally CDs, and it worked, but it now seems that they want 1 form per CD. In the future, I'll fill out everything on the form except amount and CD account number, then copy the form for each CD and fill in the details. It's really no big deal.

Kevin
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Kevin M
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Post by Kevin M »

FedGuy wrote:
john94549 wrote:My main concern about a switch to Ally (with multiple 5 year CDs) is paperwork. Do I need ten friggin different IRA accounts for 10 different CDs?
And will you get 10 different 1099s?
You mean when you start taking withdrawals? You don't get a 1099 for an IRA account until then.

For taxable accounts, Ally sends a consolidated 1099, in which they provide a total amount for all CDs. Last year I just entered this total into a single 1099 in TurboTax. Simple.

Kevin
nonnie
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Post by nonnie »

john94549 wrote:
My main concern about a switch to Ally (with multiple 5 year CDs) is paperwork. Do I need ten friggin different IRA accounts for 10 different CDs? I wonder, when all is said and done, even if rates "spike", if it would be worth the hassle. Stated another way, I'm basically lazy. I wonder how far rates would have to spike over the next five years to motivate me. I have yet to answer my own question.
I have multiple 5 yr CDs at Ally although none in an IRA. You get the choice of interest paid every month, every 3 months or upon maturity. I've found their customer service reps--live telephone-- extremely helpful. Why not give them a call--in regard to the CDs, not the motivation question :D
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Mel Lindauer
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Post by Mel Lindauer »

For money not needed for at least one year, consider risk-free I Bonds which are currently yielding 4.6% tax deferred. And the interest is free from state and local taxation when you redeem the bond(s).
Best Regards - Mel | | Semper Fi
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SaturnV
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Post by SaturnV »

Mel Lindauer wrote:For money not needed for at least one year, consider risk-free I Bonds which are currently yielding 4.6% tax deferred. And the interest is free from state and local taxation when you redeem the bond(s).
I am wondering if this is too good to be true. I admit to not being anything resembling an expert with respect to I Bonds. On treasurydirect.com I saw that I Bonds cannot be redeemed for 1 year, have a 3-month penalty on redemptions for bonds held less than 5 years, and have a variable interest rate. While the rate is presently 4.6% annualized, it was recently less than 1%. I just wonder if what seems like a great deal today may become a not-so-good deal in the near future. Again, I am no expert and welcome any comments on my observations.
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Kevin M
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Post by Kevin M »

IlliniGuy wrote:
Mel Lindauer wrote:For money not needed for at least one year, consider risk-free I Bonds which are currently yielding 4.6% tax deferred. And the interest is free from state and local taxation when you redeem the bond(s).
I am wondering if this is too good to be true. I admit to not being anything resembling an expert with respect to I Bonds. On treasurydirect.com I saw that I Bonds cannot be redeemed for 1 year, have a 3-month penalty on redemptions for bonds held less than 5 years, and have a variable interest rate. While the rate is presently 4.6% annualized, it was recently less than 1%. I just wonder if what seems like a great deal today may become a not-so-good deal in the near future. Again, I am no expert and welcome any comments on my observations.
Excellent observation. Nevertheless, I Bonds are still a good deal. You'll get the minimum 4.6% rate for 6 months, then say the rate drops to 0% for the next 6 months, giving you 2.3% for the year. With 0% rate, the 3 month penalty will be $0. Therefore, you get a minimum of 2.3% for 1 year, which you can't beat for a safe 1-year investment.

Kevin
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SaturnV
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Post by SaturnV »

Kevin - thanks. That makes a lot of sense.
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Gray
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Post by Gray »

I'm not concerned about tax reporting. I'm concerned about losing money if I break a CD before maturity.
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Nutella Junkie
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Post by Nutella Junkie »

Gray wrote:I'm not concerned about tax reporting. I'm concerned about losing money if I break a CD before maturity.
On top of that, most 2-3 CD's out there right now only pay a few basis points more than online savings accounts. What's the point really?
Dandy
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Post by Dandy »

the no penalty cd rate stays the same for the term -- the savings acct has no such assurance. I would go for the higher rate no penalty CD even though the current difference is minimal. Their longer term CDs have only a 2 month interest penalty (tax deductible) and their 4 yr CD also has 2 opportunities to bump up the rate if there rate goes upl'

Have had no problem with Ally's no penalty CD or their 24/7 service. They have always offered a 1/4% interest above their stated rate at CD renewal.
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Gray
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Post by Gray »

The point is that with a 60 day interest penalty, the 5 year CD with Ally is effectively no penalty. If you hold it 3+ years, you come out well ahead of their other CD products.
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