Certificates of deposit often offer higher interest rates than savings accounts and money market accounts because the banks expect customers to keep their money locked away in CDs for a predetermined period of time. Most banks discourage withdrawals from CDs by charging a penalty for any withdrawal before maturity.
The penalty usually takes the form of a certain portion of interest that the customer would have been earned. A number of banks have begun improving their certificates of deposit by offering “no penalty” options. Ally Bank is offering an 11-month no penalty CD.
Unlike Ally Bank’s other CD offerings, which charge a penalty of 60 days’ interest if you withdraw any portion of your deposit before the maturity date, you can withdraw your entire balance in the no penalty CD at any time starting six days after you open the account. You cannot, however, withdraw a portion of your balance; you must remove all the funds in the CD in order to qualify for the penalty-free benefit.
One thing to keep in mind before you open a CD is the likelihood of interest rates increasing before maturity. Unless you’re experimenting with Ally’s “Raise Your Rate” CD, you lock in the current interest rate when you open the account. If interest rates increase around you, you will not be able to take advantage of the higher rates unless you close the account and open a new one — a free option with the no penalty CD.
Rates are at all-time lows, and they have no place to go but up. The only question is the timing.
For more of my thoughts on Ally Bank, read my review. Consumerism Commentary is an authorized affiliate of Ally Bank.
Updated December 11, 2012 and originally published April 30, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.