Ally Bank 11 month [No-Penalty CD]

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Rob5TCP
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Ally Bank 11 month [No-Penalty CD]

Post by Rob5TCP » Sat Dec 17, 2016 7:19 pm

[1.75% rate discussion starts on Page 5, 2.00% deal on Page 6 --admin LadyGeek]

Ally announced over the weekend an 11 month CD at 1.25% with no penalty for closing early.
For very short term, it's a decent rate. The no penalty, should rates shoot up (or you just need access to your funds)
allows a penalty fee closing (you can not partially close, so open multiple if you think you might need some).


Https://www.ally.com/bank/no-penalty-cd/

tibbitts
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Re: Ally Bank 1.25% 11 month with no EWP

Post by tibbitts » Sat Dec 17, 2016 7:45 pm

Thanks for posting that. Seems like there's no disadvantage vs. keeping money in the 1% savings?

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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Sat Dec 17, 2016 7:52 pm

I'm already in the process of moving my banking from Bank of America and Synchrony (savings) and consolidating with Ally for simplicity. This sounds like a great way to store my E-Fund and get a risk-free yield that's higher than most Savings accounts.

Is there any risk to this that I'm not seeing? Apparently you can withdraw anytime after 6 days and there are no fees, including Early Withdrawal Penalties.

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Rob5TCP
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Re: Ally Bank 1.25% 11 month with no EWP

Post by Rob5TCP » Sat Dec 17, 2016 8:02 pm

GMan82 wrote:I'm already in the process of moving my banking from Bank of America and Synchrony (savings) and consolidating with Ally for simplicity. This sounds like a great way to store my E-Fund and get a risk-free yield that's higher than most Savings accounts.

Is there any risk to this that I'm not seeing? Apparently you can withdraw anytime after 6 days and there are no fees, including Early Withdrawal Penalties.
If you put all your money into 1 CD and wish to withdraw only partial, you must close out the CD (no partial).
If you feel you might need partial w/d, setting up several small rather than one large CD probably works best.
Also the time to close and transfer funds might be a couple of days. Transferring from a savings to a checking usually is immediate (if both at Ally).

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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Sat Dec 17, 2016 8:10 pm

All good points. I keep $1000 in checking for immediate use at all times. A credit card is also good for backup. A nice thing for me though is that my E-fund can then sit still and my mortgage short term savings can sit in my Savings Account.

I suppose what I should really see this as is my mortgage savings in the CD and my EFund still in HYS. Semantics. But still a decent deal here.

Mr. Gatti
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Re: Ally Bank 1.25% 11 month with no EWP

Post by Mr. Gatti » Sat Dec 17, 2016 8:11 pm

Or right now for up to $10K per taxpayer per year, you could get I bonds with a guaranteed minimum of 1.38%.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by Rob5TCP » Sat Dec 17, 2016 8:20 pm

Mr. Gatti wrote:Or right now for up to $10K per taxpayer per year, you could get I bonds with a guaranteed minimum of 1.38%.
You can not redeem the first year and if redeemed before 5 years, there is a 3 month penalty.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by frisbee » Sat Dec 17, 2016 9:00 pm

My crystal ball is cloudy - I've had my emergency fund and house down payment stashed in a 1% savings account at Capital One. With 1-yr CD's at 1.25%, I didn't want to lose the flexibility or deal with the hassle for 25bp.

Do you think the rates on online savings accounts (Ally, Synchrony, CapitalOne) will rise more or less in lock-step with market rates on CD's? If the Fed raises rates another 1.0% by Dec-2017, would you expect Savings rates to rise equivalently?

It doesn't really matter to me, because by definition my assets are liquid, and if I decide the spread has gotten too big, I can easily make the switch.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by whodidntante » Sat Dec 17, 2016 9:38 pm

Behold. My redneck bank account pays as much. And i get a debit card with a ridiculous horse.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by cheese_breath » Sat Dec 17, 2016 9:57 pm

frisbee wrote:My crystal ball is cloudy - I've had my emergency fund and house down payment stashed in a 1% savings account at Capital One. With 1-yr CD's at 1.25%, I didn't want to lose the flexibility or deal with the hassle for 25bp....
I guess it's a matter of perspective. If you say 25bps it doesn't seem like much. But if you say 25% increase in the interest rate it seems like a lot more. I've got some extra money from my RMD sitting in Ally right now that I don't intend to spend for awhile so I guess I'll take them up in the offer.
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Re: Ally Bank 1.25% 11 month with no EWP

Post by Mr. Gatti » Sat Dec 17, 2016 10:07 pm

Rob5TCP wrote:
Mr. Gatti wrote:Or right now for up to $10K per taxpayer per year, you could get I bonds with a guaranteed minimum of 1.38%.
You can not redeem the first year and if redeemed before 5 years, there is a 3 month penalty.
Technically, you are correct about not redeeming within first 12 months. If you buy at the end of the month, it's a little over 11 months until you can redeem.

For I Bonds bought from now until the end of April 2017, even with the 3 month penalty you would get a minimum of 1.38%. The 1.38% will be paid for the first 6 month period. Even if the next inflation rate is 0 and you had the penalty, you would still not get any less than 1.38%.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by Rainmaker41 » Sat Dec 17, 2016 11:04 pm

Excellent; thanks for the tip. No penalty means it is liquid if need be, so I just opened this CD and instantly poured my Reserve Fund into it that was previously the bulk of my Ally Online Savings. It seems a bit silky, but an extra couple dollars or so a month is nice.
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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Sat Dec 17, 2016 11:08 pm

Is this some sort of special? Or have they always had this CD? My NRL FCU 777 CD deal matures in a few days. I want to transfer that cash into this CD. Hopefully it will still be active this week.
Last edited by GMan82 on Sun Dec 18, 2016 12:06 am, edited 1 time in total.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by stlutz » Sat Dec 17, 2016 11:22 pm

Yes, they have had the 11 month "no-penalty" CD for a long time. They just raised the rate on Friday--used to be .87%, I think.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by mac808 » Sat Dec 17, 2016 11:23 pm

Is the CD interest paid monthly similar to their checking accounts?

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Re: Ally Bank 1.25% 11 month with no EWP

Post by boater07 » Sun Dec 18, 2016 12:50 am

Hopefully I'll see it tomorrow. Not advertised in NW as of 10PM

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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Sun Dec 18, 2016 1:56 am

Vanguard's Limited Term Tax Exempt Bond fund (VMLTX) has a current SEC yield of 1.47%. For those of us in high federal tax brackets (33% for me), I think this may make more sense than even the Ally 11-month CD. It's average duration is about 2.5 years and it's risk is rated level 1 on Vanguard's site.

I may actually just open a second taxable account (to keep things separate) and move the cash I'm saving for a mortgage downpayment into this fund. It's low-risk, vs the risk-free CD, higher-yielding, but also comes with a lower tax bill, too.

Is this a crazy idea? I don't mind taking a little risk using a short duration Bond fund for money I may need anywhere from 12-36 months from now. I will admit I don't fully understand Bond funds, but this appears to be a better deal.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by frisbee » Sun Dec 18, 2016 7:39 am

GMan82 wrote:Vanguard's Limited Term Tax Exempt Bond fund (VMLTX) has a current SEC yield of 1.47%. For those of us in high federal tax brackets (33% for me), I think this may make more sense than even the Ally 11-month CD. It's average duration is about 2.5 years and it's risk is rated level 1 on Vanguard's site.
Same situation for me. I think I understand risky (bonds) vs. risk free (CD), and that a CD and Bonds are two different asset classes. I guess the question you & I need to answer is are we willing to absorb market & inflation risk for the ~0.7% yield advantage of the bond fund?

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Re: Ally Bank 1.25% 11 month with no EWP

Post by simplesimon » Sun Dec 18, 2016 7:52 am

This seems like a great deal and a great move by Ally. If the Fed raises rates three to four times next year like they said they might and Ally raises rates on CD's again, then break the CD and put the money in the new CD.
GMan82 wrote:Vanguard's Limited Term Tax Exempt Bond fund (VMLTX) has a current SEC yield of 1.47%. For those of us in high federal tax brackets (33% for me), I think this may make more sense than even the Ally 11-month CD. It's average duration is about 2.5 years and it's risk is rated level 1 on Vanguard's site.

I may actually just open a second taxable account (to keep things separate) and move the cash I'm saving for a mortgage downpayment into this fund. It's low-risk, vs the risk-free CD, higher-yielding, but also comes with a lower tax bill, too.

Is this a crazy idea? I don't mind taking a little risk using a short duration Bond fund for money I may need anywhere from 12-36 months from now. I will admit I don't fully understand Bond funds, but this appears to be a better deal.
If you bought into it with the same justification three months ago, today you'd be down over a year's worth of interest and would need to hope either for interest rates to fall or stay steady while you collect monthly interest just to break even on your investment. If you don't mind holding on like that, then go for it.

FWIW, in a high tax bracket like yours, I would do it.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by MikeG62 » Sun Dec 18, 2016 9:51 am

Rob5TCP wrote:Ally announced over the weekend an 11 month CD at 1.25% with no penalty for closing early.
For very short term, it's a decent rate. The no penalty, should rates shoot up (or you just need access to your funds)
allows a penalty fee closing (you can not partially close, so open multiple if you think you might need some).


Https://www.ally.com/bank/no-penalty-cd/
Thanks for the heads-up. I just moved funds from my online savings account to this CD. Picked up the extra 25bps (well 23bps over 11 months). Good deal.
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Re: Ally Bank 1.25% 11 month with no EWP

Post by PhysicsTeacher » Sun Dec 18, 2016 10:12 am

Thanks for the heads up! We're going to move part of our house down payment fund to an Ally cd today. We aren't planning to buy in the next year but wouldn't rule it out if the right deal came along so no EWP makes this a great fit for us.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by mrc » Sun Dec 18, 2016 10:13 am

MikeG62 wrote: Thanks for the heads-up. I just moved funds from my online savings account to this CD. Picked up the extra 25bps (well 23bps over 11 months). Good deal.
Ditto that for us too. Thanks for noting.
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Re: Ally Bank 1.25% 11 month with no EWP

Post by TheTimeLord » Sun Dec 18, 2016 10:14 am

Rob5TCP wrote:Ally announced over the weekend an 11 month CD at 1.25% with no penalty for closing early.
For very short term, it's a decent rate. The no penalty, should rates shoot up (or you just need access to your funds)
allows a penalty fee closing (you can not partially close, so open multiple if you think you might need some).


Https://www.ally.com/bank/no-penalty-cd/
Thank you for the very actionable information.
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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Sun Dec 18, 2016 12:18 pm

simplesimon wrote:This seems like a great deal and a great move by Ally. If the Fed raises rates three to four times next year like they said they might and Ally raises rates on CD's again, then break the CD and put the money in the new CD.
GMan82 wrote:Vanguard's Limited Term Tax Exempt Bond fund (VMLTX) has a current SEC yield of 1.47%. For those of us in high federal tax brackets (33% for me), I think this may make more sense than even the Ally 11-month CD. It's average duration is about 2.5 years and it's risk is rated level 1 on Vanguard's site.

I may actually just open a second taxable account (to keep things separate) and move the cash I'm saving for a mortgage downpayment into this fund. It's low-risk, vs the risk-free CD, higher-yielding, but also comes with a lower tax bill, too.

Is this a crazy idea? I don't mind taking a little risk using a short duration Bond fund for money I may need anywhere from 12-36 months from now. I will admit I don't fully understand Bond funds, but this appears to be a better deal.
If you bought into it with the same justification three months ago, today you'd be down over a year's worth of interest and would need to hope either for interest rates to fall or stay steady while you collect monthly interest just to break even on your investment. If you don't mind holding on like that, then go for it.

FWIW, in a high tax bracket like yours, I would do it.
So in a high tax bracket, you would go for the bond fund, then? I have to think on this a little. With the Fed saying they'll increase rates 3 times in 2017, bond funds will likely go down. I'm wondering if the yield advantage of this fund will then outweigh the taxable dividends of the CD in the end. So I need to figure out: Ally CD vs VMLTX. In the end, the amount of money earned by taxable interest vs non-taxable interest may be insignificant on a $10k investment even in the 33% federal and 6% state bracket. With a layered EFund (I-bonds, some cash, and potentially this CD or Bond fund) going either direction might still be acceptable.

Decisions decisions.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by simplesimon » Sun Dec 18, 2016 12:30 pm

mac808 wrote:Is the CD interest paid monthly similar to their checking accounts?
Ally gives you a few different options:

Interest paid at maturity.
Interest paid monthly depositing into an account of your choice or by check via mail.
Interest paid quarterly depositing into an account of your choice or by check via mail.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by frisbee » Sun Dec 18, 2016 3:10 pm

At Ally, can you automatically roll over to a new CD, or do you have to deal with it each year?

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Re: Ally Bank 1.25% 11 month with no EWP

Post by boater07 » Sun Dec 18, 2016 4:38 pm

Unfortunately---not available for IRA accounts

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Re: Ally Bank 1.25% 11 month with no EWP

Post by pasadena » Sun Dec 18, 2016 4:58 pm

simplesimon wrote:
mac808 wrote:Is the CD interest paid monthly similar to their checking accounts?
Ally gives you a few different options:

Interest paid at maturity.
Interest paid monthly depositing into an account of your choice or by check via mail.
Interest paid quarterly depositing into an account of your choice or by check via mail.
It's worth noting that in order to get the full APY, you have to choose the first option (it's also the default) as the APY takes compounding interests into account.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by adayrider » Sun Dec 18, 2016 8:08 pm

frisbee wrote:At Ally, can you automatically roll over to a new CD, or do you have to deal with it each year?
Says on their website, they will automatically roll it.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by orlandoman » Mon Dec 19, 2016 7:04 am

frisbee wrote:At Ally, can you automatically roll over to a new CD, or do you have to deal with it each year?
At ally, you can pre-choose what you want to happen at maturity. You can let it rollover, or my my case I had it transferred automatically to my Ally money maket account.
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Re: Ally Bank 1.25% 11 month with no EWP

Post by EvelynM » Mon Dec 19, 2016 8:46 am


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Re: Ally Bank 1.25% 11 month with no EWP

Post by simplesimon » Mon Dec 19, 2016 11:29 am

pasadena wrote:
simplesimon wrote:
mac808 wrote:Is the CD interest paid monthly similar to their checking accounts?
Ally gives you a few different options:

Interest paid at maturity.
Interest paid monthly depositing into an account of your choice or by check via mail.
Interest paid quarterly depositing into an account of your choice or by check via mail.
It's worth noting that in order to get the full APY, you have to choose the first option (it's also the default) as the APY takes compounding interests into account.
That's right.

Interest compounds daily and they tell you the "current redemption amount" which includes accrued interest.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by Bfwolf » Mon Dec 19, 2016 11:52 am

GMan82 wrote:With the Fed saying they'll increase rates 3 times in 2017, bond funds will likely go down.
This information is already priced into bonds today.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by kelway » Mon Dec 19, 2016 12:57 pm

Thank you for that ... Made the exchange right before lunch, and according to my calculations this info will pay for about 10 of them.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by feh » Mon Dec 19, 2016 1:26 pm

frisbee wrote:
GMan82 wrote:Vanguard's Limited Term Tax Exempt Bond fund (VMLTX) has a current SEC yield of 1.47%. For those of us in high federal tax brackets (33% for me), I think this may make more sense than even the Ally 11-month CD. It's average duration is about 2.5 years and it's risk is rated level 1 on Vanguard's site.
Same situation for me. I think I understand risky (bonds) vs. risk free (CD), and that a CD and Bonds are two different asset classes. I guess the question you & I need to answer is are we willing to absorb market & inflation risk for the ~0.7% yield advantage of the bond fund?
A portion of our portfolio is dedicated to short-term fixed income. The time horizon for these funds is 3 years.

That bucket is comprised of I Bonds, CDs and VMLTX. I use VMLTX when I can't find a decent CD rate, which has been rare lately (I have a couple 3% 3 year CDs). That being said, I think VMLTX is an excellent choice in this scenario.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by zeep » Mon Dec 19, 2016 1:32 pm

I was just about to fund Andrews FCU Certificates. Trying to decide whether funds I don't view as short term investment should go into the
  • AFCU 3.01% 7-year CD with 180 EWP,
    AFCU 3.01% 6 month CD (painful early withdrawal)) or
    the Ally 1.25% 11 month CD with no EWP.
I'm thinking the 3% 6 month CD is looking good.
Thoughts?

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Re: Ally Bank 1.25% 11 month with no EWP

Post by tenkuky » Mon Dec 19, 2016 2:39 pm

zeep wrote:I was just about to fund Andrews FCU Certificates. Trying to decide whether funds I don't view as short term investment should go into the
  • AFCU 3.01% 7-year CD with 180 EWP,
    AFCU 3.01% 6 month CD (painful early withdrawal)) or
    the Ally 1.25% 11 month CD with no EWP.
I'm thinking the 3% 6 month CD is looking good.
Thoughts?
AFCU 6 month is max $15K and a hard credit pull

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Re: Ally Bank 1.25% 11 month with no EWP

Post by kaneohe » Mon Dec 19, 2016 4:25 pm

tenkuky wrote:
zeep wrote:I was just about to fund Andrews FCU Certificates. Trying to decide whether funds I don't view as short term investment should go into the
  • AFCU 3.01% 7-year CD with 180 EWP,
    AFCU 3.01% 6 month CD (painful early withdrawal)) or
    the Ally 1.25% 11 month CD with no EWP.
I'm thinking the 3% 6 month CD is looking good.
Thoughts?
AFCU 6 month is max $15K and a hard credit pull
don't know about the hard pull but they allowed more than that so ask when you call.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by batpot » Mon Dec 19, 2016 4:35 pm

simplesimon wrote:
pasadena wrote:
simplesimon wrote:
mac808 wrote:Is the CD interest paid monthly similar to their checking accounts?
Ally gives you a few different options:

Interest paid at maturity.
Interest paid monthly depositing into an account of your choice or by check via mail.
Interest paid quarterly depositing into an account of your choice or by check via mail.
It's worth noting that in order to get the full APY, you have to choose the first option (it's also the default) as the APY takes compounding interests into account.
That's right.

Interest compounds daily and they tell you the "current redemption amount" which includes accrued interest.
so if you pick the first option and pull out early, you get nothing?
It's a paltry difference...1.2429 going 12 months, vs 1.2442 going quarterly - so go monthly.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by cheese_breath » Mon Dec 19, 2016 4:36 pm

I don't know why these CUs think they need a hard pull when you're handing your money over to them. Same thing happened to me when I joined LMCU and put about $65K into their products.
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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Mon Dec 19, 2016 4:37 pm

Bfwolf wrote:This information is already priced into bonds today.
Good to know. I guess fluctuations in the coming months will just be the usual short-term fluctuations. If not, then I suppose a TLH opportunity would show up.
feh wrote:A portion of our portfolio is dedicated to short-term fixed income. The time horizon for these funds is 3 years.

That bucket is comprised of I Bonds, CDs and VMLTX. I use VMLTX when I can't find a decent CD rate, which has been rare lately (I have a couple 3% 3 year CDs). That being said, I think VMLTX is an excellent choice in this scenario.
Thanks for your comment. I just feel that with a little extra risk, I can get not only a better yield but a better after-tax Yield as well. At my marginal rate, I would need a tax-equivalent Yield of over 2.1% to match the tax-exempt Bond fund. I have some I bonds, which I hope to eventually put my entire EFund in, but for short term savings, that could be needed anywhere from 1-3 years from now, most CDs at that yield are too long. Plus I won't be able to add to it like I can a fund.

Anyway, I still think the Ally CD is a good spot to temporarily house my EFund until I can get it into I Bonds. I might use the Bond fund for my short-term savings.

I just need to figure out if I just put it all into my current vanguard brokerage or open a separate brokerage account just for the short term savings so that it doesn't throw off the portfolio analyzer when I try to rebalance.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Mon Dec 19, 2016 4:40 pm

batpot wrote: so if you pick the first option and pull out early, you get nothing?
It's a paltry difference...1.2429 going 12 months, vs 1.2442 going quarterly - so go monthly.
If you break the CD early, and had chosen for the interest to be paid at maturity, it makes sense to me that the already accrued interest would just be paid out when you pull out early. Is that not the case?

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Re: Ally Bank 1.25% 11 month with no EWP

Post by batpot » Mon Dec 19, 2016 4:48 pm

GMan82 wrote:
batpot wrote: so if you pick the first option and pull out early, you get nothing?
It's a paltry difference...1.2429 going 12 months, vs 1.2442 going quarterly - so go monthly.
If you break the CD early, and had chosen for the interest to be paid at maturity, it makes sense to me that the already accrued interest would just be paid out when you pull out early. Is that not the case?
you may be right.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by junior » Mon Dec 19, 2016 7:09 pm

So I signed up for 1.25%. I moved the money from a savings account at Ally bank with a 1% rate. The process went okay.

It occurs to me though that for every $10,000 someone switches over, when they go from 1% to 1.25% they make about 22 dollars more after 11months. Arguably this isn't worth the added complexity of opening the CD accounts.

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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Mon Dec 19, 2016 7:46 pm

junior wrote:So I signed up for 1.25%. I moved the money from a savings account at Ally bank with a 1% rate. The process went okay.

It occurs to me though that for every $10,000 someone switches over, when they go from 1% to 1.25% they make about 22 dollars more after 11months. Arguably this isn't worth the added complexity of opening the CD accounts.
After taxes, it's even less. For me, after 33% federal and 6% GA state, it's actually about $13 more. But I guess with yields still being so low, this is where we're at. More reason to look at the low-risk Tax-Exempt funds. Now if only tax-exempt money-market yields were worth it. Vanguard's MM Tax-exempt fund (VMSXX) has a SEC yield of 0.51%. I would need an taxable equivalent yield of 0.0051/(1-0.33-0.06) = 0.84%. In this case, the Ally 11-month CD at 1.25% or their HYS at 1% makes the taxable dividends worth it. This is assuming I'm calculating the tax-equivalent yields correctly using both my federal marginal and Georgia marginal rates.

However, with Vgd Short-term Tax Exempt SEC yield of 1.01% (VWSTX), I'd need a tax-equivalent yield of about 1.65% in Savings or CDs to make it worth it. On bankrate, the CDs with that yield are roughly 3-year CDs, but the bond duration is roughly 1 year in VWSTX. I don't know of an HYS accounts that offer that rate, other than some rewards checking accounts that require TONS of hoops to jump through that make it annoying. Going towards Vgd Limted Term Tax Exempt (VMLTX), the SEC yield is 1.47%. The tax-equivalent yield for a CD/HYS/MM account would be about 2.41%. On Bankrate, the CDs that offer that rate don't exist at the 5 year mark. Though I've heard of some of the 3% CDs that are talked about elsewhere on this site. VMLTX is roughly 2.5 years in average duration.

Moral of this story: I'm beginning to think Yield chasing at these low yields is MUCH more work than it's worth. Either accept the "High Yield" of savings accounts, which is actually a lot less once taxes are accounted for, or take some risk and use a low-risk, short/limited-term tax-exempt Bond fund if you're in a higher tax bracket. My tax-bracket is making these CDs less than appealing, really, just because I keep less of the dividends. I-bonds are a nice alternative, in my opinion, with tax-deferral for up to 30 years, but the $10k limit per year and the inability to access for at least 1 year makes them challenging.

boglephreak
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Re: Ally Bank 1.25% 11 month with no EWP

Post by boglephreak » Mon Dec 19, 2016 8:05 pm

GMan82 wrote:
junior wrote:So I signed up for 1.25%. I moved the money from a savings account at Ally bank with a 1% rate. The process went okay.

It occurs to me though that for every $10,000 someone switches over, when they go from 1% to 1.25% they make about 22 dollars more after 11months. Arguably this isn't worth the added complexity of opening the CD accounts.
After taxes, it's even less. For me, after 33% federal and 6% GA state, it's actually about $13 more. But I guess with yields still being so low, this is where we're at. More reason to look at the low-risk Tax-Exempt funds. Now if only tax-exempt money-market yields were worth it. Vanguard's MM Tax-exempt fund (VMSXX) has a SEC yield of 0.51%. I would need an taxable equivalent yield of 0.0051/(1-0.33-0.06) = 0.84%. In this case, the Ally 11-month CD at 1.25% or their HYS at 1% makes the taxable dividends worth it. This is assuming I'm calculating the tax-equivalent yields correctly using both my federal marginal and Georgia marginal rates.

However, with Vgd Short-term Tax Exempt SEC yield of 1.01% (VWSTX), I'd need a tax-equivalent yield of about 1.65% in Savings or CDs to make it worth it. On bankrate, the CDs with that yield are roughly 3-year CDs, but the bond duration is roughly 1 year in VWSTX. I don't know of an HYS accounts that offer that rate, other than some rewards checking accounts that require TONS of hoops to jump through that make it annoying. Going towards Vgd Limted Term Tax Exempt (VMLTX), the SEC yield is 1.47%. The tax-equivalent yield for a CD/HYS/MM account would be about 2.41%. On Bankrate, the CDs that offer that rate don't exist at the 5 year mark. Though I've heard of some of the 3% CDs that are talked about elsewhere on this site. VMLTX is roughly 2.5 years in average duration.

Moral of this story: I'm beginning to think Yield chasing at these low yields is MUCH more work than it's worth. Either accept the "High Yield" of savings accounts, which is actually a lot less once taxes are accounted for, or take some risk and use a low-risk, short/limited-term tax-exempt Bond fund if you're in a higher tax bracket. My tax-bracket is making these CDs less than appealing, really, just because I keep less of the dividends. I-bonds are a nice alternative, in my opinion, with tax-deferral for up to 30 years, but the $10k limit per year and the inability to access for at least 1 year makes them challenging.
what do you think about VCAIX (Cal. Tax-Exempt Intermediate Term)? SEC Yield at 2.12%; average duration 5.3 yrs. I am at 35/10 for fed/cal. taxes. currently have emergency fund in ally at 1.0%. thanks.

GMan82
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Re: Ally Bank 1.25% 11 month with no EWP

Post by GMan82 » Mon Dec 19, 2016 8:21 pm

I'm talking about using these tax-exempt funds in lieu of an Ally HYS or no-penalty CD in a tiered Emergency Fund or for short-term savings. That fund has a duration of about 5 years so you'd need to be able to tolerate some interest rate risk or mix it with a short-term fund to lower the duration. Is the extra yield worth the effort though? I don't know enough about bonds to really advise you, but that's what I would do.

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simplesimon
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Re: Ally Bank 1.25% 11 month with no EWP

Post by simplesimon » Tue Dec 20, 2016 8:41 am

batpot wrote:
simplesimon wrote:
pasadena wrote:
simplesimon wrote:
mac808 wrote:Is the CD interest paid monthly similar to their checking accounts?
Ally gives you a few different options:

Interest paid at maturity.
Interest paid monthly depositing into an account of your choice or by check via mail.
Interest paid quarterly depositing into an account of your choice or by check via mail.
It's worth noting that in order to get the full APY, you have to choose the first option (it's also the default) as the APY takes compounding interests into account.
That's right.

Interest compounds daily and they tell you the "current redemption amount" which includes accrued interest.
so if you pick the first option and pull out early, you get nothing?
It's a paltry difference...1.2429 going 12 months, vs 1.2442 going quarterly - so go monthly.
If you pick the first option and withdraw early, you get the stated "current redemption amount" which includes accrued interest.

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TheTimeLord
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Re: Ally Bank 1.25% 11 month with no EWP

Post by TheTimeLord » Tue Dec 20, 2016 9:50 am

Bfwolf wrote:
GMan82 wrote:With the Fed saying they'll increase rates 3 times in 2017, bond funds will likely go down.
This information is already priced into bonds today.
No it isn't. A percentage of it is but even then The Fed only controls a small part of the yield curve. Which funds get hurt and which do well will depend on if the yield curve flattens or steepens and that is a function of perceived future growth, inflation and supply and demand.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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TheTimeLord
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Re: Ally Bank 1.25% 11 month with no EWP

Post by TheTimeLord » Tue Dec 20, 2016 9:52 am

junior wrote:So I signed up for 1.25%. I moved the money from a savings account at Ally bank with a 1% rate. The process went okay.

It occurs to me though that for every $10,000 someone switches over, when they go from 1% to 1.25% they make about 22 dollars more after 11months. Arguably this isn't worth the added complexity of opening the CD accounts.
Really? How much do you normally get paid for 5-10 minutes worth of work?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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