Hard to justify a CD with penalty at 4.6% when a no penalty at 4.4% exists (Sallie Mae/Savebetter). Give yourself the flexibility/liquidity option and give up the 0.2%, seems like the right move.
Well, step 1 is maxing out the i-bond contribution ($10k/pp/py) if you haven't done that, before May when the new rate will certainly be lower. So, do that first for your first $10k.
Edit: ^ The above has an argument against it depending on your view of how Feb-Apr CPI will impact the inflation component of the next i-bond rates. YMMV.
You didn't miss the boat at all btw, I just think this is a good time to buy. There's a lot of laymen inflationary talk and fearmongering going on but sharp traders who actually trade bonds are already looking ahead towards deflation here, and the retail interest-bearing products are going to catch up to that sentiment imo.
Anyway, in order after i-bonds if you don't need the money for 1-2 years:
1. 27-month (a little over 2 years but still) CD posted on SD today that was at 5%
2. 12-month t-bill (~4.65% or so, NOTE: This may be #1 if you live in a high income tax state)
3. CD like the one here for 4.6%
4. No-penalty CD at SallieMae for 4.4%
I actually think the liquidity with the SallieMae CD is worth the 0.2% as I said in my first comment, for the opportunity cost alone. I would rank it ahead of this Ally CD but curated it based on what you said. You never know what could open up and this is a hedge against rates rising higher due to unforeseen wage growth or other inflationary (from a CPE perspective) components that the Fed would use to justify more hikes than anticipated/priced in. Just my 2c, but anyway, buy the ibonds first this quarter.
I think you're thinking about this correctly. A 50bp move from the current rate isn't going to make a material difference in 5y CD yields, which seem to be between 4.3% and 4.5% at the time of writing. Instead, consider what WILL drive them:
1. The dot plot released in subsequent Fed meetings where Fed members provide forward guidance on the terminal rate.
2. The Fed's forecast of core inflation through 2024 and beyond (I believe they're looking at 3.1% long-run, but I might be off on that, don't want to check right now)
3. How 2-5y yields react to the above 2 points
4. How breakevens are pricing cuts moving forward. When, for how long, and how much as well as how aggressively.
With all that in mind, and this is really more of a thought exercise from a trading perspective than for consumers holding these products to maturity, I think the current 5y CD rates will have a positive real return as early as Q3 2024. I think less so of the US 5y mostly because it's trading at 3.5%, but even then I'd probably be long the US 5y rather than short.
I'm not intimately familiar with these banks' business models but a few of these rates, at a surface level, give off an "asleep at the wheel" vibe. The short bond trade is super crowded across funds and crowded trades usually don't go well.
If I were specifically in the market for 5y CDs (I'm not) I'd be buying them now, and I think this will be close to, if not the, secular terminal rate for this cycle.
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I have some other CD's at Ally at roughly half this interest rate. What is the formula to calculate the payoff period for the penalty for early withdrawal of a CD to put into another CD at higher interest rate?
I'm assuming most bank CDs are "call protected" like the one posted here? I was reading through a post of someone who had all their CDs cancelled by their brokerage, meaning they stop accruing interest at the point of the callback and their original deposit is refunded. This appears to only be a thing of "Brokerage CDs" which I've never heard of before. Still doing some research on the topic myself, just wanted to make folks aware.
Bank CDs are non callable AFAIK.
Any CD you obtain via a brokerage (Vanguard, TD, Schwab, etc) can be callable or non-callable, & you need to research that before making a decision.
My understanding is that if interest rates drop, your CD will probably be called within 3-4 months & won't make it to term.
I called them and the rep said existing accounts are eligible. I tried setting it up online and the app went through but said 5-7 business days for review.
Did any existing Ally customer have trouble opening this account up online?
It wouldn't process for me. Once on adding a joint account holder and a second time upon application submission. It said to call but I just don't feel up to dealing with a rep right now.
I don't see this cd listed on the site anywhere except through the link here. I wonder if that is an issue or whether this is only available to new accounts.
I did it last night and it too gave me issues. The CD was created though but the money wasn't transferred. Luckily, it was a quick fix so I just clicked on add deposit and transferred my money from my online savings to the CD account. Hope that helps!
Doing a lot of research here but it seems like t-bills are the better deal overall vs a bank CD for a multitude of reasons. Anyone who has looked into both want to clarify why they're choosing a CD like this one over a t-bill? I'm gonna guess it would probably make sense for someone who already has Ally bank and feels it's more convenient investing within their own platform.
Doing a lot of research here but it seems like t-bills are the better deal overall vs a bank CD for a multitude of reasons. Anyone who has looked into both want to clarify why they're choosing a CD like this one over a t-bill? I'm gonna guess it would probably make sense for someone who already has Ally bank and feels it's more convenient investing within their own platform.
I was one of those people for a long time as it's what I knew and it's easier. T-Bills aren't as easy to get as CDs, especially if you already have a checking or savings account at the same bank. But yes, I see no reason to get CDs when T-bills have higher rates and tax savings.
That's true, but also keep in mind that there is a chance that you could lose money if you sell the treasury bill prior to maturity if interest rates go up. If they go up dramatically, the CD penalty may actually be less punishing.
What's the penalty on the CD? Kind of sketchy that they don't tell you what it is upfront. I would bet the penalty would be pretty severe, and that you would still be better off selling a t bill if rates go up vs selling your CD with the penalty.
What's the penalty on the CD? Kind of sketchy that they don't tell you what it is upfront. I would bet the penalty would be pretty severe, and that you would still be better off selling a t bill if rates go up vs selling your CD with the penalty.
For Ally, the do finally present some of that information when you fill out an application copied here on 1/26/2023:
The penalty depends on your term.
2 years or less - 60 days of interest
3 year - 90 days of interest
4 year - 120 days of interest
5 year - 150 days of interest
11 month (No Penalty CD) - You can withdraw funds any time after the first 6 days from funding. This penalty is calculated using the interest method detailed in the Ally Bank Deposit Agreement (PDF). It's first deducted from the accrued interest and then - if necessary - the principal. Keep in mind, you can't make an early partial withdrawal.
For Raise Your Rate CDs, the penalty is calculated using the interest rate in effect on your account on the day you request an early withdrawal.
If the account owner passes away or is judged legally incompetent, we'll waive the early withdrawal penalty.
Doing a lot of research here but it seems like t-bills are the better deal overall vs a bank CD for a multitude of reasons. Anyone who has looked into both want to clarify why they're choosing a CD like this one over a t-bill? I'm gonna guess it would probably make sense for someone who already has Ally bank and feels it's more convenient investing within their own platform.
I was also one of those people who did CDs and never Treasuries. It's what I knew. Now that I've found out about Treasuries and how much they yield, plus state tax free (I'm in heavy tax CA), I have done a 180 and only (for now) invest in 1yr and shorter Treasuries for the highest yields. For me, and I think for a lot of people, it's the initial hurdle to get into Treasuries that is the biggest deterrent. Once you set up the official TreasuryDirect.gov account, then it's easy-peasy to buy Treasuries, min $100, max is too high to worry about. Also, you can only buy iBonds (limit $10K/person/year) from TreasuryDirect.gov and iBonds cannot be traded though you can sell before maturity. However, that is one thing about TreasuryDirect.gov -- it is for buy-and-hold, you cannot 'trade' TBills/Notes/Bonds (ie sell before maturity) from the TreasuryDirect.gov website. If you want to 'trade', you must transfer those Treasuries from TreasuryDirect.gov to a brokerage firm, or you can just buy those Treasuries directly from a brokerage firm. However, brokerage firms might have a higher min (like $1000), and though they don't usually charge you to buy, if you 'sell', I think they usually will charge you a fee/commission, even all the no-commission discount brokerage firms. Of course they don't tell you that upfront, they just say there is no difference between buying from their brokerage firm and directly from TreasuryDirect.gov. So if you don't plan on trading Treasuries, and are just investing for the interest (I am creating ladders), I would take the time and create a TreasuryDirect.gov account. I had no problems doing it, though some people may have more difficulties.
In the future, if for some reason bank CDs start to earn much higher than Tbills/notes/bonds, then of course I will switch back to CDs.
I'm assuming most bank CDs are "call protected" like the one posted here? I was reading through a post of someone who had all their CDs cancelled by their brokerage, meaning they stop accruing interest at the point of the callback and their original deposit is refunded. This appears to only be a thing of "Brokerage CDs" which I've never heard of before. Still doing some research on the topic myself, just wanted to make folks aware.
I have found most brokerage CDs are callable. So if interest rates go down, the brokered CD's bank will 'call'/cancel your CD and return your principle -- you will not make that high CD interest rate to term. That is in contrast to CDs purchased directly from a bank -- they have always been non-callable in my experience.
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Edit: ^ The above has an argument against it depending on your view of how Feb-Apr CPI will impact the inflation component of the next i-bond rates. YMMV.
You didn't miss the boat at all btw, I just think this is a good time to buy. There's a lot of laymen inflationary talk and fearmongering going on but sharp traders who actually trade bonds are already looking ahead towards deflation here, and the retail interest-bearing products are going to catch up to that sentiment imo.
Anyway, in order after i-bonds if you don't need the money for 1-2 years:
1. 27-month (a little over 2 years but still) CD posted on SD today that was at 5%
2. 12-month t-bill (~4.65% or so, NOTE: This may be #1 if you live in a high income tax state)
3. CD like the one here for 4.6%
4. No-penalty CD at SallieMae for 4.4%
I actually think the liquidity with the SallieMae CD is worth the 0.2% as I said in my first comment, for the opportunity cost alone. I would rank it ahead of this Ally CD but curated it based on what you said. You never know what could open up and this is a hedge against rates rising higher due to unforeseen wage growth or other inflationary (from a CPE perspective) components that the Fed would use to justify more hikes than anticipated/priced in. Just my 2c, but anyway, buy the ibonds first this quarter.
1. The dot plot released in subsequent Fed meetings where Fed members provide forward guidance on the terminal rate.
2. The Fed's forecast of core inflation through 2024 and beyond (I believe they're looking at 3.1% long-run, but I might be off on that, don't want to check right now)
3. How 2-5y yields react to the above 2 points
4. How breakevens are pricing cuts moving forward. When, for how long, and how much as well as how aggressively.
With all that in mind, and this is really more of a thought exercise from a trading perspective than for consumers holding these products to maturity, I think the current 5y CD rates will have a positive real return as early as Q3 2024. I think less so of the US 5y mostly because it's trading at 3.5%, but even then I'd probably be long the US 5y rather than short.
I'm not intimately familiar with these banks' business models but a few of these rates, at a surface level, give off an "asleep at the wheel" vibe. The short bond trade is super crowded across funds and crowded trades usually don't go well.
If I were specifically in the market for 5y CDs (I'm not) I'd be buying them now, and I think this will be close to, if not the, secular terminal rate for this cycle.
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Should I break CD? [depositaccounts.com]
Bank CDs are non callable AFAIK.
Any CD you obtain via a brokerage (Vanguard, TD, Schwab, etc) can be callable or non-callable, & you need to research that before making a decision.
My understanding is that if interest rates drop, your CD will probably be called within 3-4 months & won't make it to term.
New accounts is what I'm thinking
Wtf is going on at Ally?
Should I break CD? [depositaccounts.com]
AWESOME!
Early withdrew a 3.25% CD, and got their new 13month 4.6%, to grab $130 more overall!
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It wouldn't process for me. Once on adding a joint account holder and a second time upon application submission. It said to call but I just don't feel up to dealing with a rep right now.
I don't see this cd listed on the site anywhere except through the link here. I wonder if that is an issue or whether this is only available to new accounts.
Thx.
I did it last night and it too gave me issues. The CD was created though but the money wasn't transferred. Luckily, it was a quick fix so I just clicked on add deposit and transferred my money from my online savings to the CD account. Hope that helps!
The penalty depends on your term.
2 years or less - 60 days of interest
3 year - 90 days of interest
4 year - 120 days of interest
5 year - 150 days of interest
11 month (No Penalty CD) - You can withdraw funds any time after the first 6 days from funding. This penalty is calculated using the interest method detailed in the Ally Bank Deposit Agreement (PDF). It's first deducted from the accrued interest and then - if necessary - the principal. Keep in mind, you can't make an early partial withdrawal.
For Raise Your Rate CDs, the penalty is calculated using the interest rate in effect on your account on the day you request an early withdrawal.
If the account owner passes away or is judged legally incompetent, we'll waive the early withdrawal penalty.
In the future, if for some reason bank CDs start to earn much higher than Tbills/notes/bonds, then of course I will switch back to CDs.
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