We all know that long term CDs have higher rates than short term CDs… or so we thought. A unique Ally Bank CD  set of rules actually lets us take advantage of the higher rates with a shorter term.
I eliminated my CD ladders  awhile ago due to the interest rates, but my kids still have CDs that are renewing at ultra low rates, so I’m interested in finding a better CD product for their money.
CD Strategy to Lock in Higher Rate
One of the Ally Bank CD  strategies that is gaining momentum  is to purchase a 5 year CD with plans to pay the two month interest penalty when you access the money, making it financially a better option than short term CDs.
Ally Bank  opened the door for this option when they made a standard 6 month interest penalty only 2 months on their CDs.
How it Works
The 5 year APY is 2.95%. The 1 year APY is 1.49%. The fee to withdraw your CD before maturity is 60 days’ interest.
If at the end of one year, you break your CD, here’s what it might look like if you invested $5,000:
- Open a 5 year Ally Bank CD  at the 2.95% APY.
- Earn about $148 at the end of year one.
- Close your CD and forfeit $25 in interest.
- Net about $123, which is equivalent to about 2.46%.
Finding a 1 year CD that pays 2.46% is next to impossible, so it’s a no brainer in my mind.
This example ignores that interest is compounded daily. But it’s a strategy that’s makes the 1 year CDs unnecessary if you want to earn the highest rate.
Locking In Low Rates
What if interest rates go up and you don’t want to lock in at such low rates? With the Ally Bank CD , you can break your CD, pay the penalty, and open a new CD at higher rates.
I had my mom open a Ally Bank CD  this week, with the intention of keeping the money in the CD for 1-2 years. She reported that it only took a few minutes to open. I’ll be opening mine soon, as soon as each of the old CDs matures.
Have you looked into the Ally Bank CDs? Are you planning to use the penalty feature to get higher rates?