pocketmint

Risk-free high-yield savings option

When is a CD not a CD? When it’s a savings account in disguise.

Traditionally, certificates of deposit have offered a trade-off: in return for the bank’s guarantee of a fixed interest rate, you promise to leave your money with the bank for a specific term. If you renege and withdraw your funds early, you pay the bank a fee equivalent to some portion of the interest you would have earned. In some cases this can result in a net loss: take the case of a six-month CD with a three-month interest penalty; if you withdraw your money after just one or two months, you’ll have less than you started with.

Ally Bank, which up until last month was GMAC, offers a ‘no-penalty’ 9-month CD. Just like any other CD, it has a guaranteed interest yield. Unlike any other CD (or, um, other common 9-month investments), you pay no penalty for early withdrawal. The result is that it functions almost exactly like a long-term savings account with a nine-month guaranteed interest rate. There are just two minor differences:

1. you cannot withdraw your money within the first six days after opening the account, and
2. you cannot withdraw only part of the CD amount; rather it must be treated as a lump sum.

I spent a fair bit of time looking for the catch here, and couldn’t find one. This appears to be a genuine no-lose situation for customers. If interest rates continue to decline, you’ve got yours locked in. If they rise, you just take your money out and put it somewhere else — even another no-penalty CD. Ally compounds interest daily, so you will always receive the full amount earned through the date of your withdrawal.

The current rate on this 9-month CD is 2.30% APY. I checked Bankrate to compare against all savings account rates as well as CD rates for terms up through one year; the only current product that beats the no-penalty CD is Ally’s own one-year traditional CD, at 2.35%.

Ally’s current Bankrate rating is 3 stars, or ‘performing’, with a predictive indicator to ‘improve’. (I note that no banks currently have a 5-star rating, the highest right now is 4, ‘strong’.) Despite pressure from the FDIC to lower their rates, Ally still consistently appears in the top five spots on Bankrate for both savings accounts and short-term CDs.

I opened my first savings account with them in May of last year, when they were still GMAC, due to their top rates. I also took out a 6-month CD with them this winter.

One of the reasons I’ve shied away from CDs in the past is the hoops that some banks make you jump through to stop the balance from rolling over into a new CD when your current one matures — often written notice is required. Ally executes these instructions easily over the phone. (I happened to call about my CD on the first day after the name change, which had to be a time of maximum stress for their customer service people, yet the fellow I spoke to was both friendly and efficient.)

I have in fact thus far had impeccable customer service from GMAC/Ally at every turn. Their web site is easy to use. Phone support is now available 24/7 and seems to be US-based. Their new branding campaign suggests they’re aiming for the same niche in which ING Direct operates, but with consistently better interest rates than ING offers. The good customer service gives me hope that it’s not merely a marketing ploy, but an actual commitment to customer experience.

(Photo by bettina n.)

Should we worry about WaMu? and other disasters

Sorry for the recent silence; I’ve been having a rough couple of weeks on the Life front. No financial crises, though, at least not yet! Thanks for all the recent comments — it cheers me up to see so many people reading.

This week got off to an interesting start for us with the early-buzzard circling of Washington Mutual.  WaMu has been my primary bank for over a decade, and currently holds all of our liquid assets — currently around $30,000 in checking and savings.

Now, all of that money is covered by FDIC insurance, so I’m not worried about a possible bank failure costing me money in the long run. But what about the short run?

Marc Hedlund posted to the Wesabe blog Wheaties for Your Wallet yesterday with an explanation for “What happens to your money if your bank closes?”.  Most of it is based on the experiences of one NetBank customer who reported a delay of two to three weeks before he had access to his money after the FDIC shut NetBank down.

This was … alarming, in our circumstance.  But it didn’t match what I remembered hearing from my friend Stacy, also a NetBank checking customer when it folded.  To be certain, I phoned her up and grilled her on her post-closure financial access.  Here’s what she said:

• She never lost access to her money. Debit cards continued to work uninterrupted for purchases and at ATMs.
• She lost online account access for two days, over the weekend. By Monday morning everything was available online again. In the interim, phone support and balance queries remained functional.

I have no idea why her experience was so different from Wesabe’s informant, but that’s an almost unnoticable blip in service. I’ve been more inconvenienced by Comcast going on the fritz.

So I’m not going to rush off and open up a new non-WaMu checking account for bet-hedging purposes. But I think I will be making one other change …

Yesterday I heard an interview on NPR’s All Things Considered with Hurricane Ike refugees in Houston. I was struck particularly by two things: one, that stores in Houston were running out of food.  Wha? I mean, it’s not Manhattan Island here, we’re talking about one of the great highway hubs of the nation, and they can’t truck in nonperishables to restock?  And two, that all purchases were cash-only.  I couldn’t tell from the report whether this was because of logistical reasons (like power outages) or emotional ones, but it did give me pause.  Jak and I typically have no more than $40 cash between us, and often none at all.  Seattle is a lot safer than the Gulf Coast, but there’s always the chance of, say, a really big earthquake.

So on the list for this week is pulling about $200 out of our WaMu accounts into a Cash Stash. Our biggest problem then becomes keeping it out of the hands of the teenager, who keeps losing her debit card and thinks that we should be her personal ATM.

(Photo by zephyrbunny.)