Ally Bank’s highly competitive 2.80% APY on a 1 year certificate of deposit CD (formerly GMAC Bank) beats the national average on a 1 year CD rate of 1.85% APY. This is drawing the ire of their competition, and surprisingly the American Banking Association. If you want in on these rates for your CD ladder, you had better act fast!
Who’s complaining about high CD rates?
GMAC LLC, which has gotten two federal bailouts in six months, rejected on Monday competitors’ complaints that its Ally Bank unit is paying excessive interest rates to attract deposits, according to Reuters News reports.
The auto and mortgage lender was responding to a demand by the American Bankers Association that bank regulators limit Ally’s rates, after GMAC got $12.5 billion of government aid.
Ally dismissed the allegations as “highly inappropriate,” calling the ABA’s effort an unfair attempt to restrain competition. The lender is not a member of the trade group.
“We intend to use all of our resources to deliver fairly priced credit to small businesses and consumers that need it,” GMAC Chief Executive Alvaro de Molina said in a letter to ABA Chief Executive Edward Yingling. “These loans will be funded, in part, by deposits which offer an attractive return for consumers that have money to invest.”
Offering unusually high deposit yields can be a sign of distress, as it was last year when the now-failed Washington Mutual Inc offered 5 percent yields on one-year certificates of deposit.
The Federal Deposit Insurance Corp last week clarified a rule that bars weaker banks from paying abnormally high rates.
Ally was recently offering one of the three highest yields in seven of eight deposit categories, stretching from money market deposits to five-year CDs, the New York Times said on Sunday, citing data from Bankrate.com.
For example, Ally offered a 2.80 percent yield on a 1-year CD, more than twice the national average of 1.20 percent.
“ABA believes it is completely inappropriate, and indeed risky, for GMAC/Ally Bank to be allowed by the regulators to continue to pay rates well above the market,” the group said in a letter to the FDIC.
Some rivals have alleged that American International Group Inc has been able to reduce insurance premiums after a series of government bailouts. Government watchdogs say the allegation is not supported by firm evidence.
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Actually the APY used to be 2.70% several weeks ago. But I prefer the 9 month CD at Ally bank, which doesn’t have any fees if you withdraw earlier.