Ally CDs rates going up within 4 years?

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Will Ally's CD raise your rate 4 yr CD of 1.44% go up within 4 years?

Yes, rates will go up to 1.71% or greater (current 5 yr. rate)
12
40%
Yes, rates will go up to between 1.45% and 1.70%
5
17%
No, rates will stay at 1.44% or go lower
13
43%
 
Total votes: 30

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runner9
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Ally CDs rates going up within 4 years?

Post by runner9 »

I'm trying to decide on a CD for part of our emergency fund. We probabably won't need the money for many years, if ever but you never know. Therefore, I like Ally's 60 day penalty for early withdraw, as opposed to PenFed's 180 days for less than 5 year terms. (PedFed 4 year is currently 1.63%)

I'm trying to decide between:

1. the Raise your Rate 4 year at 1.44% which allows for two raises if rates go up
2. 5 year regular CD at 1.71%

As rates have been so flat and even been going down I'm curious what the insightful people here think the chances are of rates going up. Obviously, if rates don't increase the raise your rate aspect is worthless.

Thanks,
Jeremy
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Taylor Larimore
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Re: Ally CDs rates going up within 4 years?

Post by Taylor Larimore »

Hi Jeremy:
I'm curious what the insightful people here think the chances are of rates going up.
I'm not that "insightful." I know what I don't know.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Call_Me_Op
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Re: Ally CDs rates going up within 4 years?

Post by Call_Me_Op »

Taylor Larimore wrote:Hi Jeremy:
I'm curious what the insightful people here think the chances are of rates going up.
I'm not that "insightful." I know what I don't know. :wink:

Best wishes.
Taylor
+1 :wink:
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runner9
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Re: Ally CDs rates going up within 4 years?

Post by runner9 »

Ok, then if you were in my position how would you determine which one to put money into?

Or maybe PenFed is better, as 10K's interest is:

$567.51 for 1.44% for 46 months (4 yrs minus 2 months)

$587.07 for 1.63% for 42 months (4 yrs minus 6 months)
eclipsis
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Re: Ally CDs rates going up within 4 years?

Post by eclipsis »

If you aren't already making use of I-Bonds, I would suggest filling up that space first. You will get better interest than CDs (currently) as well as tax advantages. Note however that you can't redeem them for the first 12 months.
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Re: Ally CDs rates going up within 4 years?

Post by Call_Me_Op »

Given that rates have a lot more room in the up direction than the down direction, I would opt for the bump-up CD.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
john94549
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Re: Ally CDs rates going up within 4 years?

Post by john94549 »

Placing that EF in a CD (any CD, bump-up or not) has "availability" risk. If you really, truly, need the money, and the funds have that "in our discretion" or "with our permission" early withdrawal clause, you might be unhappy. While that does not appear to apply to Ally, you should note that if you choose to withdraw any funds from a CD, you must withdraw all funds. Partial withdrawals from a CD are not permitted. Ally differs from other institutions, where partial CD withdrawals are permitted, and the EWP applies only to funds withdrawn. This is often buried in the "fine print" of CD disclosures.

Stated another way, that modest 60-day EWP might not be so modest if applied to your entire CD, when all you need is 10% of it. If you have $100K in a CD, and need $10K, would you rather pay 60 days on the whole (roughly $291) or 180 days on the amount withdrawn (roughly $88).

Feel free to correct my math, but I suspect Ally already figured it out.
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auntie
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Re: Ally CDs rates going up within 4 years?

Post by auntie »

Stated another way, that modest 60-day EWP might not be so modest if applied to your entire CD, when all you need is 10% of it.
That's why I have 8 5-yr CDs at Ally, all maturing at the same time. I had 9 but I needed the money and closed one already.
High risk does not equal high reward. It equals high risk of no reward.
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Re: Ally CDs rates going up within 4 years?

Post by john94549 »

auntie wrote:
That's why I have 8 5-yr CDs at Ally, all maturing at the same time.
Ouch. And I thought I had laddering issues. The reason you bought 8, as opposed to one, was (fill in the blank).

Nothing maturing here until 2014.
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G-Money
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Re: Ally CDs rates going up within 4 years?

Post by G-Money »

I like to minimize regret. Why not buy one of each?
Don't assume I know what I'm talking about.
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auntie
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Re: Ally CDs rates going up within 4 years?

Post by auntie »

The reason you bought 8, as opposed to one, was (fill in the blank).
I expected to want some of the money before the 5 years were up, but not all at once. It wasn't a problem buying a bunch of them at once. Now whenever I need some cash I can just close one or more, taking the penalty only on the one(s) I close.
High risk does not equal high reward. It equals high risk of no reward.
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runner9
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Re: Ally CDs rates going up within 4 years?

Post by runner9 »

I was already thinking of doing two CDs of 5K or 6K each so we'd only have to break one if we need any of the money.

Based on a prior post I've been reading the wiki on ibonds and the TD site and leaning that way. 2.20% currently and a guess would be that it won't go down much.

As this would be the longest term for part of our emergency funds I'd doubt we'd need the money anytime soon. We have $20K plus interent in a CD at Ally maturing in November that (as of now) we'll want to reinvest in a CD(s).
Radman
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Re: Ally CDs rates going up within 4 years?

Post by Radman »

First nothing states you would have to take out a single 100k CD. I have 25 $1000 CD at Ally. They don't have a limit on how many you can take out. It just means I get thick envelopes in the mail with 25 statements. Ally has also stated if they were to change their CD policy regarding early withdrawal they would notify all customers in advance so it should never be a surprise. I plan to buy more $1000 CD to expand my EF over time. Given the interest penalty is only 60 days I feel it has more liquidity than I bonds that cannot be touched for 1 year.
Anon1234
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Re: Ally CDs rates going up within 4 years?

Post by Anon1234 »

In march I put half my cash in "raise your rate" cd and half in traditional cd.
john94549
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Re: Ally CDs rates going up within 4 years?

Post by john94549 »

OK, I yield. Point made. You win. Eight CDs. Or 100.

Like the concept of a really thick envelope, or 100 envelopes. Neighbors (not to mention the mailman) will assume great wealth.
Last edited by john94549 on Sat Jul 07, 2012 10:17 pm, edited 1 time in total.
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JamesSFO
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Re: Ally CDs rates going up within 4 years?

Post by JamesSFO »

I am in the "it doesn't make sense to have anything other than a 5 yr w/ them" camp right now. I am assuming rates will go up in the 5 yr period, but that it will make sense to close some of the CDs at that point rather than use the Raise Your Rate feature...
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Re: Ally CDs rates going up within 4 years?

Post by Grandpaboys »

"Ally differs from other institutions, where partial CD withdrawals are permitted, and the EWP applies only to funds withdrawn. This is often buried in the "fine print" of CD disclosures."

I contacted Ally with the above statement and was told Ally DOES NOT ALLOW partial withdrawals.
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tc101
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Re: Ally CDs rates going up within 4 years?

Post by tc101 »

I wonder if Ally will find some way to avoid letting you bump up the 4 year CD rate.
What if they don't ever offer any higher rates on 4 year CDs, but only on 3 an 5 year CDs?
What if they just stop issuing 4 year CDs?
It seems to me there are too many ways for them to avoid ever letting anyone actually bump up the rate.
. | The most important thing you should know about me is that I am not an expert.
pc95
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Re: Ally CDs rates going up within 4 years?

Post by pc95 »

Rates may go up, but when? And by how much? Japan has had ridiculously low rates for over a decade. The USA's rates have been low for a few years. I'd guess rates could be held low for at least several year longer minimum. They may only be put up marginally too.
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Re: Ally CDs rates going up within 4 years?

Post by john94549 »

Grandpaboys wrote:"Ally differs from other institutions, where partial CD withdrawals are permitted, and the EWP applies only to funds withdrawn. This is often buried in the "fine print" of CD disclosures."

I contacted Ally with the above statement and was told Ally DOES NOT ALLOW partial withdrawals.
Which is what I thought I said. Ally differs from other institutions. Other institutions offer partial withdrawals. Ally does not. This might explain their EWP.
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Re: Ally CDs rates going up within 4 years?

Post by Grandpaboys »

Sorry John, I misunderstood what you said, however I am not aware of any BANKS offering partial withdraws. Can you name a few.
Thanks
Good Day | GP
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mildred66
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Re: Ally CDs rates going up within 4 years?

Post by mildred66 »

If you are looking at a 4+ year horizon, why not go with an I-Bond? I=Bonds are inflation-protected, and offer no penalties for withdrawals after five years (and only three month's earnings after one year. Other pros from an article on Motley Fool:

* I Bonds are backed by the full faith and credit of the U.S. government.
* They can be bought from most financial institutions, including TreasuryDirect.
* The earnings are exempt from state and local taxes, and can be tax-free if used for post-secondary education expenses.
* Taxes on earnings can be deferred for up to 30 years.
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Re: Ally CDs rates going up within 4 years?

Post by BigD53 »

tc101 wrote:I wonder if Ally will find some way to avoid letting you bump up the 4 year CD rate. It seems to me there are too many ways for them to avoid ever letting anyone actually bump up the rate.
I agree. I wouldn't place so much faith in those "bump up your rate" gimmicks. Just because interest rates rise, that doesn't mean Ally (or any other bank) has to jack up their rates. (of course, they may lose a few customers, too.)
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Re: Ally CDs rates going up within 4 years?

Post by john94549 »

Grandpaboys wrote:Sorry John, I misunderstood what you said, however I am not aware of any BANKS offering partial withdraws. Can you name a few.
Thanks
USAA does. StateFarmBank does. PenFed does (not a bank, but close).

Actually, PenFed, StateFarmBank and NWFCU allow partial IRA CD withdrawals without penalty (the EWP) in their IRA CDs. The only requirement is that you be 59 1/2 or older, and keep the minimum for a CD in your balance. PenFed's 7-year IRA CD at 2.4% is the best around with these privileges.* StateFarm's rates aren't so hot lately. I have no money at NorthWest Federal, so cannot comment aside from their disclosure statement. If I were going to harvest these days, I'd look at rates and EWPs, the general rule being "harvest low-hanging fruit".

*Think of it as a totally-liquid savings account paying 2.4%. NCUA-insured. Compared to your garden-variety NCUA-insured savings account, yielding 0.8%. Any senior with funds in an IRA should explore this option.
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Re: Ally CDs rates going up within 4 years?

Post by gracemaclean »

It should be noted that, while Ally's current early withdrawal penalty is comparatively lenient, there is no guarantee that it will remain so.
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runner9
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Re: Ally CDs rates going up within 4 years?

Post by runner9 »

Thanks everyone for your replies. Right now I'm going to be rereading the ibond wiki and Treasurydirect information. It's a bit confusing for me but as I understand it if we're holding 5 years or more we should come out ahead against a CD?

Thanks,
Jeremy
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Re: Ally CDs rates going up within 4 years?

Post by Ed 2 »

Taylor Larimore wrote:Hi Jeremy:
I'm curious what the insightful people here think the chances are of rates going up.
I'm not that "insightful." I know what I don't know.

Best wishes.
Taylor
Yes, and probably everything will be not what we are expecting. I stopped predicting long time ago and guess what? There isn't the end of the world yet. :happy
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Re: Ally CDs rates going up within 4 years?

Post by eclipsis »

JeremyM wrote:Thanks everyone for your replies. Right now I'm going to be rereading the ibond wiki and Treasurydirect information. It's a bit confusing for me but as I understand it if we're holding 5 years or more we should come out ahead against a CD?

Thanks,
Jeremy
I doubt you'd have to wait 5 years for an I-Bond to be ahead of a CD. Current rate is 2.20% until October 31, 2012. Just keep in mind, you cannot touch the money for the first 12 months. For year 1 through 5, you will pay a 3 month interest penalty (doubt you'll find a CD with a better early withdraw). You are also limited to how much you can put towards I-Bonds each year.

But on the positive side:

- Taxes on earnings is tax deferred
- Earnings are exempt from stat and local taxes
- Can be redeemed in intervals of $25
- Tax free if used for qualifying post-secondary education expenses
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runner9
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Re: Ally CDs rates going up within 4 years?

Post by runner9 »

- Can be redeemed in intervals of $25
So I if we had, say a $5K ibond and needed $1K we could take that out and leave the rest?

Tax deferred would be the same as a CD, correct? That is, for federal purposes a CD kept 5 years and a ibond cashed in at 5 years would both be taxed on interest at the 5 year mark?

My concern after rereading the wiki several times is the rate changed in May and November going way down, to below CD rates in the future. I guess we could always take the 3 month penalty (guessing it would have to be very low in this senerio) and then put the money in a CD. As this would be the "last" 30% of our emergency fund we hopefully wouldn't be touching it for quite a while unless interest rate wise it because a much worse deal for a long term.

Jeremy
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Re: Ally CDs rates going up within 4 years?

Post by nisiprius »

The question I'd ask is this. If you are currently feeling anxious because of difficulty deciding between the straight CD and the bump rate CD, aren't you also going to feel equally anxious when the time comes to decide when or whether to bump the rate?

If rates start rising, aren't you likely to dither and dawdle because of fear that you'll bump too soon and the rates will go higher?
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Re: Ally CDs rates going up within 4 years?

Post by G-Money »

nisiprius wrote:The question I'd ask is this. If you are currently feeling anxious because of difficulty deciding between the straight CD and the bump rate CD, aren't you also going to feel equally anxious when the time comes to decide when or whether to bump the rate?

If rates start rising, aren't you likely to dither and dawdle because of fear that you'll bump too soon and the rates will go higher?
That's an excellent point.

Personally, I would have a great deal of difficulty deciding when exactly to pull the trigger on that. I am perpetually at risk of analysis paralysis.
Don't assume I know what I'm talking about.
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Re: Ally CDs rates going up within 4 years?

Post by Default User BR »

JeremyM wrote:Tax deferred would be the same as a CD, correct? That is, for federal purposes a CD kept 5 years and a ibond cashed in at 5 years would both be taxed on interest at the 5 year mark?
No, CDs will credit your interest at some interval for reinvestment purposes. You will receive a 1099 each year for the interest. From IRS Pub 17:
Certificates of deposit (CDs). If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.
http://www.irs.gov/publications/p17/ch07.html


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Re: Ally CDs rates going up within 4 years?

Post by john94549 »

I suspect "bump up" CDs already have future rate expectations built-in, as it were. It's a "win-win" for them, a "lose-lose" for you. I prefer to obey the ladder. When a CD is about to mature, I shop for the best, and avoid heart arrest.
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