Update: See my update on why you should use Ally to hold all your cash in 5 year CD’s and get the highest rates possible. It should make sense for 99% of all people to follow this strategy and feel free to contact me with any questions: [email protected]
Keep Your CD’s Liquid and Still Earn the Highest Guaranteed Return
If you still bank at one of the big brick and mortar national chains, your interest rate is probably just as pitiful as mine. My local bank, Union Bank of California, gives me a 0.01% interest rate on my checking account and ranges from 0.01%, for up to $2,500, all the way up to a whopping 0.35% if I hold $100,000 or more in my savings account.
Now I know interest rates are low these days, but 0.01% seems like a slap in the face. Luckily, I also bank online with Ally. I opened a checking and savings account with them a couple years ago, and I get a moderate 0.75%(for over 15k) APR and 0.84% APR, respectively. There are some great benefits that online banks can offer due to their reduced operating costs.
Online banks operate similarly to giant online product retailers like Amazon. Both industries are able to offer steep pricing advantages because they have almost no physical presence. Here’s a look at some of Ally’s CD and Savings rates as of today(3.27.2012):
12 Month High Yield CD: 1.02%
5 year High Yield CD: 1.74%
Online Savings: 0.84%
Online Checking: 0.4% for less than 15k, 0.75% if greater than 15k
As you can see, their rates are pretty competitive with other online banks and are vastly superior to any of the nationwide big banks. I use Ally CD’s as part of my Emergency Fund Ladder because the termination penalty is only 2 months’ interest. What a steal!
Even Ally’s customer service is surprisingly helpful. You can chat online with them instantly(which I did when researching this article) or give them a call. Their website actually lists the wait time for calling in under their phone number.
We’re not talking about free money here; well in a way it’s free, but most people are so used to paying ATM fees by now, they don’t even think twice about it. Ally is one of the only banks that offers unlimited ATM fee reimbursement. This is my favorite feature of Ally and why I switched in the first place. They have no monthly reimbursement limits and no single transaction maximum. I was reimbursed once for a $15 ATM fee in Vegas!
In addition to this neat perk, Ally also offers standard free checking. This isn’t as big a deal as it once was, considering how little we write checks these days, but it’s one of many nice benefits of banking with them.
Although Ally is well known for it’s great customer service, there is only so much support they can provide online or via phone. A lot of customers rely on face to face encounters for some of their banking needs. I don’t think you can make the switch completely to Ally Bank yet, but it’s a great supplemental option to your local brick and mortar bank. Some other cons:
- If you have a lot of direct deposits set up to your local bank, switching these can really be a hassle.
- Ally offers some great rates, but you can always shop around at some other online institutions like ING to see if they have better rates.
- Ally has check scanning but they don’t have a smartphone app for it yet!
As long as the basic services are covered for free at my local bank, I’ll continue to use both. I don’t think I’m quite ready to completely switch to online banking because I like to take advantage of the benefits of both. I keep most of my money in high yield CD’s at Ally, but I always have my local bank if I need that cashier’s check or some face to face service.
Do you use an online bank? Have you tried Ally yet? Is there any reason not to?
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Bichon Frise says
We LOVE ally. Why? 2 month interest penalty on CD early withdrawal. They also make opening them super easy! Why do a 1 yr CD ladder when you can fetch better rates with 5 yr CD’s? And why not open up ten $1000 CD’s so if you do need the money, you don’t have to take the penalty hit on everything (unless you need everything)?
Thanks for the comment! Another reader pointed that out to me too. It’s a pretty smart idea. I think I’ll probably be chaning my EF and savings to all 5 year CD’s. Might as well 🙂
Joe Morgan says
I actively avoid Ally. Why? Because they are who used to GMAC – the financial arm of General Motors. When GM took bailout money and turned their back on their debt obligations to bondholders, they divested their interest in GMAC change their name and branding and like to pretend they’re a wholesome American company.
Incidentally, Ally bank is one of the few banks who failed the most recent stress test…
I would not trust my money to them.
Hi Joe, thanks for the comment and the link. I didn’t know that they were bailed out by the government but to be honest, I’m not sure how that affects me as a current customer. Why wouldn’t you trust your money to them? They are FDIC insured up to $250,000 like every other bank in America. Do you disagree with their business practices from an ethical/moral stand point?
From an investment stand point, I don’t see any risk with Ally. I have read reviews of some experiencing poor customer service, but they have always paid me in a timely manner and they transfer my money expediently when I need it. I have never had a problem with my money there. Do you mind if I ask who you bank with instead? ING?
Joe Morgan says
From an investment stand point there is no risk, as we’ve seen – the government will bail them out. I just don’t feel comfortable giving them my business. I feel like it’s a vote in favor of that sort of unethical business deal, and it would be supporting a bit part of what’s wrong with big banks, big government and the economic meltdown to begin with.
I bank with a local credit union, and ING/Capital One, and no – I’m not happy with cap one either.. but I just haven’t gotten to point of moving my money out yet.
I agree with you. In my opinion, their very existence is what is wrong with America today. If you have the right connections, you get bailed out by the gov’t on the backs of tax payer’s money. I’d rather throw away an extra percentage point than condone this type of practice by supporting this bank.
People make mistakes, as do businesses. If they’ve changed their practices and are becoming a more respectable company, why not support them? Ally wasn’t the only one to take money from the government..
People/businesses don’t say no to free money. I am more mad at the government for bailing them out..
I too bank at Ally. I also have a “very local” bank, but I didn’t like them because they weren’t flexible enough for my needs and tended to shut down my account if they found me using the debit card a mere 20 miles away from their furthest branch. With Ally, I have a bank that is virtually everywhere, and it makes direct deposits really easy. (This is important as I now have moved far, far, far away.)
They are working on the smartphone app, and I suspect it should be out by Summer. Not fast enough for me, though.
Yep, Ally is awesome IMO. Kind of disappointed in them with the lack of smartphone app(for depositing checks), but hopefully they’ll get around to it soon. I know a lot of people have requested it though, including me!
Mayor Adam West says
I know this is an old article, but I plan on switching to Ally from my local brick-and-mortar Citizens Bank ASAP. Last month they let some bonehead in another state use my checking account number to withdraw money at one of their branches(bother checking for ID??) I went into the bank once I saw it posted online and opened another account to dump my cash into. The teller didn’t want to close my current account yet until my direct deposit was swapped, pending charges went through, etc. I told her it would only take 2 days since I work for a real small company and talk to the accountant almost daily. So I kind of just brushed it off and didn’t worry about it since it had 0 dollars in it anyhow. Fast forward 40 days later and they pulled 250 bucks from my savings account for overdraft fees on the account they told me not to close! For whatever reason, they charged that account for some type of debit for $175 about 15 days ago and it has been just racking up $6.99 charges every day since. I need to go there tomorrow to raise hell and tell them our banking days are finished.
Thank you for your article. I’ve been thinking of what I should do and googling around for others’ opinions. Ally seems to be the way to go for me. Plus now they have the check scanning smart phone app!
Harry Campbell says
That sucks, not sure that something like that won’t happen with Ally but I know they won’t charge outrageous fees when something bad does happen. I rarely use my brick and mortar bank anymore since I get free checks from Ally, can deposit checks with them, and they have free ATM withdrawals. The only reason I haven’t closed it altogether is I have so many auto pays set up with them for all my credit cards. One day, I’ll switch them all haha