The two of the nation’s largest online banks, Ally Bank and Capital One 360, have been battling each other for years. While their savings accounts and checking accounts are in close competition, their CD offerings differ greatly.
Certificates of deposit (CDs) are relatively straightforward deposit accounts — commit a certain amount of money for a period of time to earn interest and pay a penalty if you withdraw funds prematurely.
The typical saver might simply compare the top CD rates and pick the best one. On this front, Capital One 360 has not been able remain competitive with Ally Bank, which offers noticeably higher CD rates.
Here’s a sampling of CD rates at the two online banks as of Aug. 27, 2013:
|CD Term||Ally Bank||Capital One 360|
|6 months||0.61% APY||0.40% APY|
|12 months||0.94% APY||0.40% APY|
|5 years||1.50% APY||0.90% APY|
Ally Bank also offers an 11-month no-penalty CD (0.85% APY) but it doesn’t pay much more than Ally’s online savings or money market accounts (0.84% APY). Furthermore, Ally has 2-year and a 4-year CDs that allow a one-time increase of the interest rate, which can come in handy if you find that you’re stuck with a low rate when interest rates are rising.
In addition to higher CD rates, Ally Bank is more lenient with its early withdrawal penalties. Ally Bank charges just 60 days worth of interest on an early withdrawal of any CD while Capital One 360 has early withdrawal penalties of 2 months’ interest on CD terms of 12 months or less and 6 months’ interest on CD terms of longer than 12 months.
While interest rates and early withdrawal penalties are the key criteria in picking a CD, banks can offer more to attract customers. Ally Bank offers a CD renewal bonus of 0.25% APY to keep loyal customers. Many community banks also allow customers to negotiate the rate when they renew a CD. Capital One 360 does not provide such a perk.
Although Ally Bank does outshine Capital One 360 with its CDs, note that other online banks do offer higher rates (see tables below). Ally Bank’s lax penalty policy and renewal bonus are likely to be the differentiating factors.