Deal Summary: Online Savings Account, 1.20% APY, No minimum balance
This morning, Ally Bank increased the rate of its Online Savings Account by 5 bps. The new rate is now 1.20% APY. This same rate change also took effect on the IRA Online Savings Account. The 1.20% APY applies to all balances. In addition to the savings accounts, Ally’s money market account also had a rate increase. That rate increased from 0.85% to 0.90% for all balances. All of these accounts have no monthly maintenance fees and no minimum balance requirement.
Thanks to DA reader, IvoryMale. who posted on the higher rates in the DA Forum.
Reason for Ally’s Rate Hike?
Ally’s last savings account rate hike was on June 30th when the savings account rate increased from 1.05% to 1.15% APY. That came soon after the last Fed rate hike. I’m glad it didn’t take another Fed rate hike for Ally to move. Competition from other internet banks may be the primary driver of this rate hike. In the last two months, we’ve seen big internet banks like GS Bank, Synchrony, Barclays and Capital One raise their saving or money market account APYs to 1.20%. In addition, several smaller ones have already reached 1.30%, and two have already reached 1.40%.
It makes sense that the smaller or newer internet banks have to offer the highest rates. First, larger banks tend to give people more confidence. Second, larger banks like Ally tend to have better online banking features. Things like linking an external account for ACH transfers or changing a beneficiary can be a hassle at some of the smaller and/or newer internet banks. If you’re at a large and established internet bank like Ally, how much higher of a rate does a small or new internet bank have to offer for you to move your money?
Ally’s Online Banking Features
One reason Ally is able to attract and retain deposits without being a rate leader is due to its online banking features that most other internet banks lack. One important online banking feature is Ally’s online transfer capabilities. It’s easy to link multiple external accounts for transfers. Ally allows large transfers to and from external accounts, and the transfers take place in one business day.
Another nice aspect of all of Ally’s accounts is the ability to designate beneficiaries. You can choose up to 10 beneficiaries for each of your non-IRA accounts, and you can choose the designation of either “In Trust For” or “Payable On Death”. Beneficiary designations can be done online in the application or with the account management software after the account has been opened. Ally also allows customers to open an account in the name of a Trust. These features make it easy to maintain FDIC insurance on deposits in excess of $1 million. I described how this can be done in this blog post.
Ally Bank Money Market Account - Why Only 0.90%?
Ally finally raised its money market rate. This is the first time the money market account had a rate hike since October 2013, and it’s the first time the rate has been 0.90% since March 2013. The advantage of the money market account over the savings account is that it offers limited check writing and debit card access. Both accounts have the 6-per-month withdrawal limitation.
For several years, Ally’s money market account used to have the same rates as the savings account. That ended in January 2014 when the savings account rate started to rise above 0.85% while the money market rate held steady.
It doesn’t seem like check and debit card access should cost 30 bps in the rate especially since those withdrawals are limited to six per month (ATM withdrawals are excluded). Since the money market account doesn’t have rate tiers or minimum balance requirements, it’s easy to open and maintain multiple money market accounts. Having multiple money market accounts is a way a customer could write more than six checks per months without incurring a fee. That could be a factor in Ally’s decision to keep the MMA rate much lower than the savings account rate.
Ally Bank’s Interest Checking Account - Way to Get Around the Low Rates
Even though the Ally money market account offers checks and a debit card, it still has a 6-per-month withdrawal limitation. That’s one reason customers may want to open the Ally Interest Checking Account. Also, the checking account offers online bill pay which isn’t offered if you only have the money market account.
The problem with Ally’s Interest Checking Account is the low rate. The top-tier rate remains at 0.60% for balances of at least $15k. For smaller balances, the rate is only 0.10%. These rates haven’t changed since 2014.
|0.60*%||$15k||-||Ally Bank||Interest Checking Account|
|OTHER TIERS: 0.10% → Up to $15k|
If you need to write checks, you can use the money market account which earns a higher interest rate. If you regularly need to write more than six checks per month, multiple money market accounts could be opened. However, as I mentioned above, the money market rate is low relative to the savings account rate.
A better solution to maximizing the amount of interest that you can earn is to use Ally’s overdraft transfer service. This is a free service that allows you to link your Ally savings account to your Ally checking account. If you exceed your checking balance, Ally will automatically transfer available funds in increments of $100 from your savings account to cover the transaction(s)–at no charge to you. By using this service, you can keep the vast majority of your funds in the savings account earning the higher rate.
The only potential gotcha with using the overdraft transfer service this way is that each overdraft transfer counts toward the 6-per-month withdrawal limit. So you may want to have at least two Ally savings accounts with one of them linked to the checking account. That will reduce the chance that you’ll go over the 6-per-month withdrawal limit (and incur a $10 fee for each withdrawal over the limit). Another advantage of having a separate savings account linked to the checking account is that you limit the loss from a fraudulent check or transfer. Ally will reimburse you for fraudulent transactions if you report them within 60 days from when your statement is made available, but that reimbursement process may take some time.
Ally Bank CDs - No Penalty CD Allows Ally To Compete with the Rate Leaders
For savings and money market accounts, it has been a long time since Ally has been a rate leader. As I mentioned above, two internet banks currently offer a savings account APY of 1.40%. Another way Ally is discouraging customers from moving their money is its 11-month No Penalty CD which currently has a top rate of 1.50% APY for balances of $25k+. The rate on the $5k balance tier is also competitive (1.25% APY). Since it can be closed at anytime after 6 days of opening without a penalty, it can be made to have any term from 7 days to 11 months. If you’re an Ally savings account customer, it’s hard to justify moving your money to another internet bank with a higher savings account rate when you can get an even higher rate with this No Penalty CD. I have more discussion in my recent Ally No Penalty CD review.
|1.50*%||$25k||-||Ally Bank||No Penalty 11-Month CD|
|OTHER TIERS: 1.00% → Up to $5k | 1.25% → $5k - $25k|
The other good Ally CD deal is its 5-year CD (2.25% APY on all balances). It isn’t a rate leader, but it’s close enough to the 5-year rate leaders to be a good deal due to Ally’s mild early withdrawal penalty (5 months of interest). You can see how this CD compares to other 5-year CDs and to short-term CDs in our CD Early Withdrawal Penalty Calculator.
Headquartered in Midvale, Utah, Ally Bank is currently the 21st largest bank in the country, with assets in excess of $122 billion and over 2.3 million customer accounts. Ally offers its services and product line to individuals 18 years or older, who have a valid Social Security number and a U.S. mailing address.
Applying for an Ally account can be done using Ally Bank’s online application or by calling Ally (877-247-2559). You can fund your new account in a few different ways:
- Transfer from an Ally or non-Ally account
- Check (by mail or Ally eCheck Deposit)
- Wire transfer
Ally Bank (FDIC Certificate # 57803) has an overall health grade of "A+" at EpBooks.us, with a Texas Ratio of 1.70% (excellent) based on March 31, 2017 data. In the past year, Ally has increased its non-brokered deposits by $11 billion, an excellent annual growth rate of 18.63%. Please refer to our financial overview of Ally Bank for more details.
How the Online Savings Account Compares
When compared to 206 nationally-available savings accounts from banks and credit unions tracked by EpBooks.us, 10 banks offer higher rates for deposits under $10k. Three internet banks (GS Bank, Synchrony, and Barclays) also offer 1.20% APY on their savings accounts. The table below shows how Ally’s savings account compares with three of the top nationally-available savings accounts:
|Interest Rate||Account Name (Min balance)||Credit Union/Bank|
|1.40% APY||Dollar Savings Account (none)||DollarSavingsDirect|
|1.40% APY||Savings Account (none)||Live Oak Bank|
|1.35% APY||eOne Savings - new customers (none)||Salem Five Direct|
|1.20% APY||Online Savings Account (none)||Ally Bank|
The above rates are accurate as of 9/1/2017.