Shopping around for a savings product can be complicated. You want a combination of things: the best possible interest rate, the most flexible terms, possibly a low minimum balance, and easy access to your account information.
Ally Bank, an Online institution which was formerly known as GMAC, does a good job of simplifying the saving process by streamlining the customer experience and offering some interesting and straightforward products.
A Penalty-Free CD? Ally’s Got It
Certificates of Deposit (CDs) are savings products that generally offer good interest rates for a preset period of time, with potentially steep penalties if you withdraw early.
Ally offers a few kinds of CDs, perhaps the most creative of which is the No-Penalty CD. Over an 11-month term, the CD turns in a 1.35% APY, a competitive interest rate for a CD with those terms these days. The difference between Ally’s No-Penalty account and others is, you guessed it, the no-penalty aspect of the CD. If you withdraw your money early, you won’t face a fee of any kind. Bank of America also offers a penalty-free CD, called the Risk Free CD, but it comes with just a 0.40% APY.
Another alternative would be opening a savings account (no withdrawal fee). Some savings accounts come with competitive interest rates, as you can see on our rates table.
Flexible CD Rates
Most everything about Ally’s two-year Raise Your Rate CD seems normal: A relatively high 1.94% APY, a penalty for early withdrawal and no monthly fees. But the account comes with the interesting ability to raise your rate once during the two-year term.
If Ally’s APY goes up at any time during your term, you can call the bank and request an upgrade to the better rate. You can only do that once during your two years, but one rate upgrade is better than none.
Using Long-Term CDs for Short-Term Profits
One interesting facet of Ally’s five-year CD is the minimal penalty it features for early pullouts.
Ally’s five-year CD currently carries 2.99% interest. If you take your money out early, you incur a penalty equal to 60 days of interest.
If you put $25,000 into the five-year CD, you would earn $758.76 in interest in the first year. If you took your money out after that first year, your penalty would be $126.46, leaving you with $632.30 in interest profit.
If you put the same $25,000 into a savings account — say, a newdominionDIRECT account with a 1.50% APY — you would bring in $375 of interest in the first year.
The difference between cutting your CD term short and opening a savings account is $257.30.
Cutting this long-term CD short might not be a way to get rich quick, but you could save a bit more money with than you would with a savings account.
Ally Isn’t the Only Bank With Attractive CD Options
Ally isn’t the only bank offering interesting CD packages or competitive interest rates. A look at the CD rates table shows impressive APYs on long-term CDs from banks such as newdominionDIRECT and American Express Bank.
Discover Bank and Bank of America each have available no-penalty CDs, and taking a few minutes to look for low-penalty, long-term CDs at your current bank could lead you to a way to turn a long-term CD into short-term interest profits.