Ally Bank CD and Early Withdrawal

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eclipsis
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Ally Bank CD and Early Withdrawal

Post by eclipsis »

Hello,

I've been reading the forum and wiki for the past couple months now and it has been extremely helpful. I'm currently saving for a down payment for first time home purchase within the next 6 months. Per my common sense (which was later validated by this forum), this money is sitting in a FDIC insured savings account (with Discover Bank) earning a measly 1.15 APY

As my time horizon is 6 months, I started to look into other places to park this money. I came across Ally Bank CDs with the 60 day interest early withdrawal penalty. Looking at the rates as of this morning, it seems it would always be better to do the 5-year CD even if I know I'm going to break it early at 6 months and pay the penalty. More than likely I'm doing my math wrong but wanted to confirm.

As of now:
6 month CD is 0.89 APY
60 month CD is 2.17 APY

The calculation I'm doing is 2.17% * ( (180-60) / 180) = 1.45%

So it seems I could get 1.45% APY by using the 60 month CD and just plan on breaking it early - beating out the actual 6 month CD. If this is the case, why would anyone choose one of the lower term CDs? Even breaking it at 4 months would end up with 1.09 APY.

Any help is appreciated, I'm sure I'm missing something simple or have a mistake in my calculation.

Thanks!
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Rob5TCP
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Post by Rob5TCP »

All of my Ally CD's are 5 years.
I have them layered:
1,000
2,500
5,000
10,000
25,000 and so on.

Should I need say 15,000 I am not breaking a $50,000 CD for it.
I don't know why people would take the shorter term.
The only possible reason is a fear that Ally will retroactively change the withdrawal terms. They have stated they will not do that.
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eclipsis
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Post by eclipsis »

Yeah, and would seem likely that if they did retroactively change the terms, that we would be given a chance to exit under the current terms.
john94549
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Post by john94549 »

I don't think you're missing anything. Why Ally continues to offer a 60-day early withdrawal penalty . . . . . That's a whole different issue.

Folks over at depositaccounts (Ken's blog) continually question whether Ally will change the early-withdrawal policy mid-stream or refuse to honor early-withdrawal requests at all. Ken apparently has some good contacts at Ally and they assure him that when you open a CD, what you see is what you get (i.e., no changes to the penalty after-the-fact), and there have been no reports (at least on the blog) of any refusals to break. Could that change going forward? Who knows? Let's just say it hasn't, so far.
CSAstor
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Post by CSAstor »

Don't forget about the difference between APR and APY. Ally CDs are compounded daily using the APR. Assuming they use 365 days per year, the APR would be closer to 2.15%.

The fee is fixed at 2 months interest:

Code: Select all

30/365 * 0.021468 * $1,000 = $1.76
So your effective APY will change each month. It will be negative for the first month, 0% on the second month.

Liquidating at 6 months would give you around a 1.2695% APY; 4 months would be around a 0.8184% APY.

There's a good spreadsheet tool here: http://www.bargaineering.com/articles/a ... nalty.html
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FNK
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Post by FNK »

Now convert it into dollars and decide whether it's worth the hassle to set up and tear down a CD for half a year.
YDNAL
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Re: Ally Bank CD and Early Withdrawal

Post by YDNAL »

FNK wrote:Now convert it into dollars and decide whether it's worth the hassle to set up and tear down a CD for half a year.
You beat me to it!
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FrugalInvestor
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Post by FrugalInvestor »

I buy all 5-yr CDs at Ally and cash them as I need them. It's more convenient than managing a ladder and as long as I hold them for a minimal period I come out ahead (at lest that was the case when I purchased them).

Thus far I've cashed one in early. The process went very smoothly although you must do it by phone and not online. The representative wasn't able to tell me what the value would be when I cashed it but their website calculated and displayed the value accurately. I don't know if she couldn't see the same screen as me or what.
Have a plan, stay the course and simplify. Then ignore the noise!
NateW
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Post by NateW »

You are missing the fact that Ally could screw something up if you try to break the CD early. Not saying it will happen, but it could. Just do your research ahead of time. This is the bank that double debited my linked checking account (at another bank) when I set up my 5-year CDs from them, causing a nearly $15,000 overdraft. Although admitting their fault, it took Ally about two months to straighten this mess out. I spent many hours on this issue too.

On a humorous note, Ally recently mailed me a 3 cent (paper) check, stating they screwed up last year calculating my interest due. That's right, 3/100 of a dollar!

--Nate
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eclipsis
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Post by eclipsis »

Thanks for all the replies. In all honesty I'm not likely going to move my money from Discover to Ally with such a short time horizon. And who knows, maybe I'll stumble upon a house before the 5-6 months.

I just thought it was a bit strange and wanted to make sure my math was right. Perhaps in the future I'll ladder some of my EF in Ally CDs - in which case if all things are equal, it will likely be better to take the 60 month rate even if I have to break it.

I'm wondering if anyone has had any issues trying to break an Ally CD early? I've looked online and found a few people saying they had no issues - doing it over the phone.

Thanks for the info.
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FrugalInvestor
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Post by FrugalInvestor »

eclipsis wrote:I'm wondering if anyone has had any issues trying to break an Ally CD early? I've looked online and found a few people saying they had no issues - doing it over the phone.
Thanks for the info.
As I mentioned above I had no issues cashing an Ally CD early except that the representative could not give me an accurate number for the total value of the proceeds. The strange thing was that I could see it on my screen (their website) but either the rep couldn't view the same screen or didn't know how to read it. That made be a bit nervous as all she would do was give me an 'estimate' which was low. I finally gave up and the correct amount of money was ultimately (and quickly) transferred into my checking account.

All's well that ends well. Next time I won't bother quizzing the rep about the proceeds as long as their website reflects it correctly.
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fishndoc
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Post by fishndoc »

NateW wrote:You are missing the fact that Ally could screw something up if you try to break the CD early. Not saying it will happen, but it could. Just do your research ahead of time. This is the bank that double debited my linked checking account (at another bank) when I set up my 5-year CDs from them, causing a nearly $15,000 overdraft. Although admitting their fault, it took Ally about two months to straighten this mess out. I spent many hours on this issue too.
I mean, it's not like Ally (or it's predecessor GMAC) has a history of making bad/inept business decisions.... :roll:
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle
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FrugalInvestor
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Post by FrugalInvestor »

fishndoc wrote:
NateW wrote:You are missing the fact that Ally could screw something up if you try to break the CD early. Not saying it will happen, but it could. Just do your research ahead of time. This is the bank that double debited my linked checking account (at another bank) when I set up my 5-year CDs from them, causing a nearly $15,000 overdraft. Although admitting their fault, it took Ally about two months to straighten this mess out. I spent many hours on this issue too.
I mean, it's not like Ally (or it's predecessor GMAC) has a history of making bad/inept business decisions.... :roll:
And no other financial institution has ever made an error or poor decisions. :roll:
Have a plan, stay the course and simplify. Then ignore the noise!
pattiwack
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Post by pattiwack »

I think your math is wrong. It should be (180-60)/365*0.0217 = 0.71%

So no it doesn't make sense. Once you get out 1yr or more its more worthwhile. I use 5yr ally cds for my EF, not ladder just several of them in smaller amounts. My goal is to hold them to maturity but if something happened I could cash some or all of them out early.
fishndoc
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Post by fishndoc »

FrugalInvestor wrote:
fishndoc wrote:
NateW wrote:You are missing the fact that Ally could screw something up if you try to break the CD early. Not saying it will happen, but it could. Just do your research ahead of time. This is the bank that double debited my linked checking account (at another bank) when I set up my 5-year CDs from them, causing a nearly $15,000 overdraft. Although admitting their fault, it took Ally about two months to straighten this mess out. I spent many hours on this issue too.
I mean, it's not like Ally (or it's predecessor GMAC) has a history of making bad/inept business decisions.... :roll:
And no other financial institution has ever made an error or poor decisions. :roll:
Sure; BOA, Citibank, Merrill Lynch, etc. And I try to avoid using them.
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle
Bigswimguy
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Post by Bigswimguy »

FYI, Ally is the second largest bond holding in the Vanguard High Yield Bond Fund, which is the 33rd largest Fund at Vanguard. I'm believing this is the same Bank referred to in this thread.

Hmmm, interesting.
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Post by kaneohe »

pattiwack wrote:I think your math is wrong. It should be (180-60)/365*0.0217 = 0.71%
I think OP's is ok. The formula here does not make sense when used
at the limit case of losing 0 days interest for early withdrawal since it becomes (180 - 0)/365* 0.0217 =~ 0.0108. If there is no penalty, the
rate/yld should be the same, not half of the nominal.
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Post by fishndoc »

Using Ally for extra yield for your fixed income holdings is fine if one wants to do business with them, but I would still question the wisdom of using it for a little more return on savings one might need before the CD matures. Sure, now they say "no problem" with early redemption (other than the penalty), but at best it could take longer than one planned, and at worst they might change their policies.

Can't happen you say? Check this thread on how Discover Bank honored its promises:
http://www.bogleheads.org/forum/viewtop ... 24#1169224
A follow-up on this: Though the website accepted the promo code when I opened the accounts in February, I never got my promotional cash ($50 bonus for each $10,000 CD opened). I called Discover and they said that the promotional code had expired and they would not make good on it, regardless of whether the website accepted it or not
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle
jimkinny
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Post by jimkinny »

fishndoc wrote:Using Ally for extra yield for your fixed income holdings is fine if one wants to do business with them, but I would still question the wisdom of using it for a little more return on savings one might need before the CD matures. Sure, now they say "no problem" with early redemption (other than the penalty), but at best it could take longer than one planned, and at worst they might change their policies.

Can't happen you say? Check this thread on how Discover Bank honored its promises:
http://www.bogleheads.org/forum/viewtop ... 24#1169224
A follow-up on this: Though the website accepted the promo code when I opened the accounts in February, I never got my promotional cash ($50 bonus for each $10,000 CD opened). I called Discover and they said that the promotional code had expired and they would not make good on it, regardless of whether the website accepted it or not

I'm with fishndoc. I deal with a local credit union and get a bit less interest and have a 6 month penalty but I just do not want to deal with Ally.

Jim
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Post by kaneohe »

jimkinny wrote: ........................................... but I just do not want to deal with Ally.

Jim
Could you elaborate on why you feel this way? I'm sitting on the fence being tempted..........
sscritic
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Post by sscritic »

CSAstor wrote:Don't forget about the difference between APR and APY. Ally CDs are compounded daily using the APR.
Their website shows both.
http://www.ally.com/bank/high-yield-cd/calculator.html

Choose 5 year:
Interest Rate:2.15%
2.17% APY
When you compound 2.15% daily you get 2.17%. It doesn't matter which you quote (but you do need to know which is which, as you say).
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Post by sscritic »

kaneohe wrote: Could you elaborate on why you feel this way? I'm sitting on the fence being tempted..........
Government bailout of GM?

I wouldn't go to a Roman Polanski movie no matter how good it is.
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Post by pattiwack »

kaneohe wrote:
pattiwack wrote:I think your math is wrong. It should be (180-60)/365*0.0217 = 0.71%
I think OP's is ok. The formula here does not make sense when used
at the limit case of losing 0 days interest for early withdrawal since it becomes (180 - 0)/365* 0.0217 =~ 0.0108. If there is no penalty, the
rate/yld should be the same, not half of the nominal.
The OP was comparing using the 5yr CD for 6mo and breaking it versus a 6mo CD. The 2.17% rate is an annual rate, so at 6mo w/no penalty you only get half of it. But with penalty its even less which is why I don't think it makes sense if you know you are going to break it at 6mo.

In my case I intend to keep for 5yrs but there is a chance I might break it early (its my emergency fund after all) in which case I'll get something less.
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Post by trico »

I guarantee, you will not become wealthy investing for a 2.17 percent return or even a 3%. You need to try and get at least 7% return, or you may as well live in a bar and drink your money away. I was thinking about burning mine. I would have to go on camera though.
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eclipsis
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Post by eclipsis »

A concrete example using the rates I posted before:

6 month CD is 0.89 APY
60 month CD is 2.17 APY

Say I put $1000 in a 6 month CD and $1000 in a 60 month CD (having 60 day early withdrawal penalty).

After 6 months, my 6 month CD will be worth $1004.45 (0.89% APY even though its not held for the full year)

After 6 months, my 60 month CD will be worth $1010.80 - 3.57 = $1007.23 (1.45% APY - again not held for full year and taking penalty into account)

I just thought it was odd that even with the penalty, the 60 month would be worth more at 6 months than the actual 6 month CD.

Like others said, this would be used as an emergency fund - I would plan to keep it the full 5 year term, but if I had to break it I could. And I would get a better rate breaking a 5 year CD early than laddering up 6 month CDs.

I assume this low penalty rate could also be exploited when/if CD rates go back up. Although I'm not sure what the policy isl if you broke all your existing 5 year CDs to just put them back in 5 years at a higher rate.
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Post by Alan S. »

It is also very possible your money will be returned without any penalty at all. How? When the FDIC assumes control of a bank without a pre arranged acquiring bank, the CDs are terminated and the money returned without penalty.

This is very real possibility with Ally since they may not get another govt bailout. Paying interest rates far in excess of market rates is a sign of desperation and very typical of banks prior to failure.

Of course, if this happens it means you may well not be able to match the interest rate with your new CD, but you still might as well go for the longer term and yield now. The FDIC is very efficient in most cases, and the cost is taxpayer cost, not CD owner cost except to the diluted extent of the CD owner as a taxpayer.
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Post by kaneohe »

eclipsis wrote:A concrete example using the rates I posted before:

6 month CD is 0.89 APY
60 month CD is 2.17 APY

Say I put $1000 in a 6 month CD and $1000 in a 60 month CD (having 60 day early withdrawal penalty).

After 6 months, my 6 month CD will be worth $1004.45 (0.89% APY even though its not held for the full year)

After 6 months, my 60 month CD will be worth $1010.80 - 3.57 = $1007.23 (1.45% APY - again not held for full year and taking penalty into account)
fwiw, I agree w/ your math.
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MooseDad
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Post by MooseDad »

Alan S. wrote: Paying interest rates far in excess of market rates is a sign of desperation and very typical of banks prior to failure.
Ally's rates are competitive, but I certainly would not call them "far in excess of market rates."

Here are Penfed's current CD rates

https://www.penfed.org/productsAndRates ... icates.asp

Term APY
6-Month 0.50%
1-Year 0.99%
2-Year 1.25%
3-Year 1.50%
4-Year 2.00%
5-Year 2.25%
7-Year 2.75%

Compared with Ally's current rates

https://www.ally.com/bank/high-yield-cd ... tabs=rates

3 months 0.44%
6 months 0.89%
12 months 1.14%
18 months 1.19%
3 years 1.59%
5 years 2.14%

At 5 years, PenFed is actually better than Ally. Is PenFed also in danger of failing?

It's the 60-day early withdrawal penalty that makes Ally so attractive to some people. Is this also a sign of desperation?

Discover Bank has comparable rates, as does USAA:

http://www.discoverbank.com/cd-compare-rates.html
https://www.usaa.com/inet/pages/bank_cd ... w_A0123456
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FrugalInvestor
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Post by FrugalInvestor »

MooseDad wrote:It's the 60-day early withdrawal penalty that makes Ally so attractive to some people. Is this also a sign of desperation?
The 60-cay early withdrawal penalty along with the relatively higher rate was what made Ally attractive to me at the time I purchased their 5-yr CDs (at 2.99%).

I've owned CDs at local banks and credit unions in the past and since I often travel it created an inconvenience when they matured. I had to call or in some cases go into the bank within a certain number of days of the CD maturing or it would automatically roll over. Calling or going in was often either difficult or impossible when I was out-of-town and I probably wouldn't want their CD that would automatically replace the previous one (I find I do better when I actively shop).

It is very nice to not have to be concerned about my CDs maturing for 5 years (now less than four) but still have access to them if and when needed, especially when I can still earn at or near the highest rates possible.

Also, I am early retired and the purpose of these CDs is to provide three years of living expenses to carry me through times of difficulty in the market. Depending on how my portfolio does I may or may not need these funds exactly when I originally project. The Ally CDs can just sit there until I need them with no attention from me. It is also nice at times of falling rates because if I don't need them when expected I continue to earn a higher rate than if they were to mature and I would have to re-invest. If rates rise the small early withdrawal penalty also gives me the opportunity to take advantage of that situation as well.

So I don't know, does this sound like a sign desperation?
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Post by kaneohe »

FrugalInvestor wrote:
MooseDad wrote:It's the 60-day early withdrawal penalty that makes Ally so attractive to some people. Is this also a sign of desperation?
The 60-cay early withdrawal penalty along with the relatively higher rate was what made Ally attractive to me at the time I purchased their 5-yr CDs (at 2.99%).

I've owned CDs at local banks and credit unions in the past and since I often travel it created an inconvenience when they matured. I had to call or in some cases go into the bank within a certain number of days of the CD maturing or it would automatically roll over. Calling or going in was often either difficult or impossible when I was out-of-town and I probably wouldn't want their CD that would automatically replace the previous one (I find I do better when I actively shop).

It is very nice to not have to be concerned about my CDs maturing for 5 years (now less than four) but still have access to them if and when needed, especially when I can still earn at or near the highest rates possible.

Also, I am early retired and the purpose of these CDs is to provide three years of living expenses to carry me through times of difficulty in the market. Depending on how my portfolio does I may or may not need these funds exactly when I originally project. The Ally CDs can just sit there until I need them with no attention from me. It is also nice at times of falling rates because if I don't need them when expected I continue to earn a higher rate than if they were to mature and I would have to re-invest. If rates rise the small early withdrawal penalty also gives me the opportunity to take advantage of that situation as well.

So I don't know, does this sound like a sign desperation?
I think MD might have meant sign of desperation on the part of Ally to get funds drawn in, not on the part of the CD holders?
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Post by kaneohe »

dup
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FrugalInvestor
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Post by FrugalInvestor »

kaneohe wrote:
FrugalInvestor wrote:
MooseDad wrote:It's the 60-day early withdrawal penalty that makes Ally so attractive to some people. Is this also a sign of desperation?
The 60-cay early withdrawal penalty along with the relatively higher rate was what made Ally attractive to me at the time I purchased their 5-yr CDs (at 2.99%).

I've owned CDs at local banks and credit unions in the past and since I often travel it created an inconvenience when they matured. I had to call or in some cases go into the bank within a certain number of days of the CD maturing or it would automatically roll over. Calling or going in was often either difficult or impossible when I was out-of-town and I probably wouldn't want their CD that would automatically replace the previous one (I find I do better when I actively shop).

It is very nice to not have to be concerned about my CDs maturing for 5 years (now less than four) but still have access to them if and when needed, especially when I can still earn at or near the highest rates possible.

Also, I am early retired and the purpose of these CDs is to provide three years of living expenses to carry me through times of difficulty in the market. Depending on how my portfolio does I may or may not need these funds exactly when I originally project. The Ally CDs can just sit there until I need them with no attention from me. It is also nice at times of falling rates because if I don't need them when expected I continue to earn a higher rate than if they were to mature and I would have to re-invest. If rates rise the small early withdrawal penalty also gives me the opportunity to take advantage of that situation as well.

So I don't know, does this sound like a sign desperation?
I think MD might have meant sign of desperation on the part of Ally to get funds drawn in, not on the part of the CD holders?
Which is why CD holders should keep their investments in any bank or credit union below FDIC/NCUA insurance limits.
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Post by Kevin M »

Alan S. wrote:It is also very possible your money will be returned without any penalty at all. How? When the FDIC assumes control of a bank without a pre arranged acquiring bank, the CDs are terminated and the money returned without penalty.

This is very real possibility with Ally since they may not get another govt bailout. Paying interest rates far in excess of market rates is a sign of desperation and very typical of banks prior to failure.
.
For what it's worth, Ally Bank is rated 5 stars (superior) by bankrate.com and 3 1/2 stars (good) by Bauer Financial. These ratings are as of March 31. Ally has been lowering their rates since then (along with everyone else), so no recent signs of desperation.
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Post by Alan S. »

I was shocked at the 5 star rating, so did some research. According to bankrate their ratings totally ignore money owed under the TARP agreement, in this case 13 billion. Ally has paid back less than 20% of their TARP loan, which is even less than AIG's repayment %.

If anyone can explain why Bankrate would totally ignore 13 billion in obvious liabilities, I am certainly eager to understand why.

http://projects.propublica.org/bailout/list/index
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Post by john94549 »

As a coda to this thread, might I add rates are dropping. USAA's 5-year CD dropped 10 basis points today (2.2% APY for a super-jumbo, >$175K, down from 2.3 as of August 26, which was down from 2.36 before then). Just when you think rates can't go lower . . . they go lower.

I look on the bright side. At least it's better than the 10-year Treasury.

In addition, I need a minimum of a 2% average yield on my CDs to justify an initial SWR of 4%. My CD renewed August 31 at the 2.3% rate, and my average is a smidge below 3% (2.9 to be exact), so I guess my ladder is OK.

For now.

But it's not like the good ol' days of 5%+ CDs across the board. Only one left in my ladder >5% (5.75%), but it runs until 2018. Yippy.
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FrugalInvestor
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Post by FrugalInvestor »

FWIW I just noticed in the following article that Ally Bank is one of many being sued by the Feds for selling toxic mortgage-backed securities to Fannie and Freddie.

http://news.yahoo.com/feds-sue-big-bank ... 12787.html
Also sued Friday were are Ally Financial Inc., formerly known GMAC LLC...
I wonder what happened to Fannie and Freddie's responsibility to perform due diligence before buying these instruments? I also wonder why the ratings agencies that were paid handsomely to construct and rate these instruments as AAA are not mentioned in the suit (as far as I can tell).
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Post by MooseDad »

FrugalInvestor wrote:FWIW I just noticed in the following article that Ally Bank is one of many being sued by the Feds for selling toxic mortgage-backed securities to Fannie and Freddie.
Here is the complete list of banks named in the lawsuit, in alphabetical order.

Ally Financial Inc.
Bank of America Corp.
Barclays Bank PLC
Citigroup Inc.
Countrywide Financial Corp.
Credit Suisse Holdings (USA) Inc.
Deutsche Bank AG
First Horizon National Corp.
General Electric Co.
Goldman Sachs & Co.
HSBC North America Holdings Inc
JPMorgan Chase & Co.
Merrill Lynch & Co./First Franklin Financial Corp.
Morgan Stanley
Nomura Holding America Inc
Royal Bank of Scotland Group PLC
Societe Generale
Yahoo News wrote:The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies.

It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion.

After Bank of America, JPMorgan Chase was listed in the lawsuits with the second-highest total at $33 billion. Royal Bank of Scotland followed at $30.4 billion.
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Post by weber »

FrugalInvestor wrote:Which is why CD holders should keep their investments in any bank or credit union below FDIC/NCUA insurance limits.
So what would be the maximum amount a married couple could put in an Ally CD and still be fully FDIC insured ?
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MooseDad
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Post by MooseDad »

weber wrote:
FrugalInvestor wrote:Which is why CD holders should keep their investments in any bank or credit union below FDIC/NCUA insurance limits.
So what would be the maximum amount a married couple could put in an Ally CD and still be fully FDIC insured ?
It depends on the account registration (individual or joint, IRA or trust). This is explained very well here:

http://www.fdic.gov/deposit/deposits/insured/faq.html

The husband could have $250k in his name, the wife $250k, and jointly another $500k. With trusts and IRAs the total could go higher.
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FrugalInvestor
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Post by FrugalInvestor »

weber wrote:
FrugalInvestor wrote:Which is why CD holders should keep their investments in any bank or credit union below FDIC/NCUA insurance limits.
So what would be the maximum amount a married couple could put in an Ally CD and still be fully FDIC insured ?
Here's a good and recent article by Allan Roth explaining the practical application of the FDIC "ownership category" language and how a couple with children and separate IRAs can get up to $3,500,000 of FDIC coverage at a single institution by titling accounts appropriately...

http://moneywatch.bnet.com/investing/bl ... ance/3056/
Have a plan, stay the course and simplify. Then ignore the noise!
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Kevin M
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Post by Kevin M »

Alan S. wrote:I was shocked at the 5 star rating, so did some research. According to bankrate their ratings totally ignore money owed under the TARP agreement, in this case 13 billion. Ally has paid back less than 20% of their TARP loan, which is even less than AIG's repayment %.

If anyone can explain why Bankrate would totally ignore 13 billion in obvious liabilities, I am certainly eager to understand why.

http://projects.propublica.org/bailout/list/index
I can't explain it, but apparently it's also not a factor used by depositaccounts.com in their ratings, which I just happened to run across. Their ratings have been updated for Q2, and Ally Bank gets 5 stars (top rating), and a Texas ratio of 2.84%, which is considered excellent. Also, the Texas Ratio has improved significantly over the last year, giving them 5 stars for "texas ratio trend" from depositaccounts.com. According to depositaccounts.com, Texas Ratio is an industry standard for determining the health of a bank.

For more details, see http://www.depositaccounts.com/banks/ally-bank.html, and click on the Health tab.

Kevin
Alan S.
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Post by Alan S. »

Perhaps the TARP liabilities are being ignored because they do NOT have a due date, unlike usual notes or bonds. However, the interest rate on the Ally TARP is 5% for the first 5 years (ends 10/2013) and then increases to 9% from then on. So far Ally has paid about 2.5 billion in dividends on the TARP loan and still owes 13.75 billion.

In 2 years this gets very expensive when the rate goes to 9%. I think this should be reflected in the ratings, but then if it was and the rating dropped to 1 star and deposits stopped coming in, the FDIC would need to take over.

Again, this makes no sense, but depositors will still get paid, either by Ally or by the FDIC. Just be totally sure to stay under the limit and reduce your max deposit by interest earnings, which also fall under the limit.
BHChinook
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Post by BHChinook »

I don't see any comments about buying CDs from Vanguard's Bond Desk. Don't they sell CDs? Are their rates not competitive?

Rates are so low that I haven't bought a CD in the past 5 years. Perhaps with the strategies given in this thread, I should revisit them.

Thanks
It's always easier to do nothing than to do something.
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Post by john94549 »

BHChinook wrote:I don't see any comments about buying CDs from Vanguard's Bond Desk. Don't they sell CDs? Are their rates not competitive?

Rates are so low that I haven't bought a CD in the past 5 years. Perhaps with the strategies given in this thread, I should revisit them.

Thanks
When I was first establishing my CD ladder, back in August 2006, I contacted VG's bond desk in this regard. I was advised that VG brokerage could not compete for the best CD deals inasmuch as the "best" CDs were not brokered out. They advised me to "shop around" by myself, which I did (and have continued to do). Now, that may have changed over the years, so it might be worth a call. I suspect your best bet is to follow the depositaccounts blog and other myriad sites devoted to the CD shopper. As a general rule, local credit unions offer the best deals these days. But with loan demand so low these days, you won't find banks or credit unions fighting over deposits.
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Post by BHChinook »

Thanks, John. For the person that might be considering starting (or restarting) a foray into CDs; is there a single book that stands out as the best for explaining the CD options?
It's always easier to do nothing than to do something.
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Post by john94549 »

BHChinook wrote:Thanks, John. For the person that might be considering starting (or restarting) a foray into CDs; is there a single book that stands out as the best for explaining the CD options?
Not of which I'm aware. There are a few fine points (brokered CDs, callable CDs, CDs linked to various esoteric thingees), but most all you need to know to create a ladder (if that's what you want to do), you can glean from Ken's blog (depositaccounts). If you have a particular question, ask it there (in the "forum") or here. Mind you, this is probably (historically) one of the worst times in memory to start a ladder. But if you're intent on it, the "least worst" option would probably be a ladder comprised of 3, 4, and 5-year terms, in equal amounts. Some credit unions offer a slight "bonus" for $25K+ amounts.

As an alternative, you might consider a ladder of I-Bonds. I don't own any, but many folks love them.
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Post by pattiwack »

eclipsis wrote:A concrete example using the rates I posted before:

6 month CD is 0.89 APY
60 month CD is 2.17 APY

Say I put $1000 in a 6 month CD and $1000 in a 60 month CD (having 60 day early withdrawal penalty).

After 6 months, my 6 month CD will be worth $1004.45 (0.89% APY even though its not held for the full year)

After 6 months, my 60 month CD will be worth $1010.80 - 3.57 = $1007.23 (1.45% APY - again not held for full year and taking penalty into account)

I just thought it was odd that even with the penalty, the 60 month would be worth more at 6 months than the actual 6 month CD.

Like others said, this would be used as an emergency fund - I would plan to keep it the full 5 year term, but if I had to break it I could. And I would get a better rate breaking a 5 year CD early than laddering up 6 month CDs.

I assume this low penalty rate could also be exploited when/if CD rates go back up. Although I'm not sure what the policy isl if you broke all your existing 5 year CDs to just put them back in 5 years at a higher rate.
Your math is still wrong. By your math you are getting more than have the annual rate for half the year and that is including a two month penalty. In your original post you were dividing by 180 to get the effective rate when you should have been dividing by 365. Once you correct this you will see the 6mo is better for a six month period.
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eclipsis
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Post by eclipsis »

pattiwack wrote: Your math is still wrong. By your math you are getting more than have the annual rate for half the year and that is including a two month penalty. In your original post you were dividing by 180 to get the effective rate when you should have been dividing by 365. Once you correct this you will see the 6mo is better for a six month period.
I am calculating APY in both cases, not actual rate. In the 60 month example, I'm not earning 1.45% because I didn't hold it for the entire year. However, in the 6 month example, I'm also not earning 0.89% because I'm not holding it for an entire year. So if I divide both by 2, the 60 month (including penalty) still comes out ahead.

For the 60 month APY, it was 2.17% but is decreased to 1.45% when including the 2 month penalty.
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Post by kaneohe »

eclipsis wrote:
pattiwack wrote: Your math is still wrong. By your math you are getting more than have the annual rate for half the year and that is including a two month penalty. In your original post you were dividing by 180 to get the effective rate when you should have been dividing by 365. Once you correct this you will see the 6mo is better for a six month period.
I am calculating APY in both cases, not actual rate. In the 60 month example, I'm not earning 1.45% because I didn't hold it for the entire year. However, in the 6 month example, I'm also not earning 0.89% because I'm not holding it for an entire year. So if I divide both by 2, the 60 month (including penalty) still comes out ahead.

For the 60 month APY, it was 2.17% but is decreased to 1.45% when including the 2 month penalty.
I agree w/you (still). Vote 2:1. See if anybody else can break the "tie".
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eclipsis
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Post by eclipsis »

Like my example above, we can ignore rates and just simply use the formula for compound interest:

A = P (1 + r/n) ^ (nt)

A = final amount
P = principal amount
r = annual interest rate
n = number of times compounded each year
t = time in years

In the example above, the APY was 0.89% and 2.17% with interest rates of 0.89% and 2.15%

So for the 6 month CD I get:
A = 1000 (1 + .0089/365) ^ (365*0.5) = $1004.46

And for the 60 month CD I get:
A = 1000 (1+.0215/365) ^ (365*0.5) = $1010.808

However, for the 60 month, we have to consider the penalty, which is 2 months of interest. So in my case, the penalty would be:

Penalty = 1000 * ( 60/365 * .0217) = 3.567

So after 6 months, the 6 month CD would result in $1004.46 and the 60 month CD would result in $1007.24.
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