The ABCs of CDs – Certificates of Deposit

Posted in Products
July 8th, 2010 at 11:07 pm by Ally

So you’ve got a bit of money tucked away. Maybe it’s in a low- or no-interest savings account, or a checking account. You know it could be working harder for you. It may be time to consider what many people view as the foundation for saving – a CD.

A CD, or certificate of deposit, is a savings tool that pays an interest rate for a fixed period of time.  The principal and any earnings will be insured the maximum FDIC coverage allowable by law, so the money is just as safe as it would be in a savings account. The difference? Generally, interest rates on CDs tend to run higher, and the rates are guaranteed for the life of the CD. The trade-off is the immediate access to the money. In most cases, banks impose a penalty for early withdrawal if you should need the money before maturity.

CDs are great tools when you want a savings product that is shorter-term than, say, your retirement savings, and when you want to keep risk to an absolute minimum. For example, you might use CDs to manage savings toward college expenses or a home purchase. Historically, CDs have required a minimum deposit of several thousand dollars. (A quick plug: Ally CDs, by contrast, are available with no minimum deposit.)

Getting started with CDs doesn’t have to be complicated. But as you take a closer look at your options, there are a few terms you’ll want to watch for and understand.

Compound interest – A beautiful thing. When interest compounds, it is added to the principal, or initial deposit. That means that the next time your interest is calculated, your money will be earning. Compounded interest, as opposed to simple interest, can add a lot to your ultimate return on a CD. Interest on Ally CDs compounds daily.

Maturity – The end of a CD’s life span. It’s important to understand how long you are committing your money, and what your bank will do when that time is up.  You may consider what flexibility and options your bank provides you at maturity manage your money.

Withdrawal penalty – Banks typically charge an early withdrawal penalty if a customer opts to remove money from a CD account before the end of the term. (Ally’s No-Penalty CD is an exception to that rule after seven days of funding your account.) When you make your selection, it’s important to understand what it will cost if you want your money back earlier than expected.

In short, CDs offer the safety similar to a savings account – but with higher interest rates to help you reach your goals faster.  In upcoming posts, we’ll provide information on choosing the right CD for your circumstances and building a CD ladder – one strategy for making the most out of your CD.

Have another CD topic or question you’d like to see addressed? Please don’t hesitate to let us know, using the comment tool below.  We want to make sure you have the information you need. That is, quite simply, why we’re here.

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Responses to this post (17 comments)

  1. 7/20/2010
    9:40 pm
    William P. Attridge says:

    Do you have Benificiary Set up or Toten Accounts,If so how many for each acct.?Can accumulated interest be withdrawn without penalty at certain times? What is the penalty for closing cd. accnt. early if necessary? Please inform,Thank You Kindly…..WPA

    • 7/21/2010
      4:31 pm
      Ally says:

      Thanks for the questions and we are happy to provide you with the answers below:

      We do offer the beneficiary set up with the option to have up to 4 beneficiaries on your CD’s. Another option is to have a Payable on Death (POD), also known as a Totten Trust.

      You can withdraw accumulated interest monthly, quarterly or at maturity; and you can receive the interest by check, deposited into another account or remain in the CD until maturity. If you leave the interest in the CD until maturity, it does allow you to earn the most on your investment since the interest on Ally CD’s is compounded daily.

      Our early withdrawal penalty on all CD’s is 60 days worth of interest, except on our No Penalty CD. With the No Penalty CD, we’ll hand over your full balance and interest any time after the first 6 days of funding your CD. For more information on our CD’s, we have included a link to our Savings & CD page http://www.ally.com/bank/compare/

      We hope that this answers all of your questions, let us know if you need anything else.

  2. 8/23/2010
    8:04 pm
    mark says:

    My dad passed away and my mom is the beneficiary of this IRA that is invested in a CD. Can this be rolled over into a retirement CD at Ally?

    • 8/24/2010
      4:38 pm
      Ally says:

      Mark, we’re sorry to hear about your loss. In response to your question, we don’t currently have an IRA option, so we can’t roll over your IRA CD. But, our customers have expressed an interest in IRAs, so we’re exploring adding one to our portfolio.

  3. 10/2/2010
    6:16 pm
    Confesor S. Terrero says:

    Do u offer a Compound Interest CD’s or a Savings Account products. Let me know asap. Thanks.

    • 10/4/2010
      10:26 am
      Ally says:

      Hi Confesor, we offer both- our various CD’s compound interest daily as well as online savings and money market accounts. We are open all the time to answer any additional questions that you may have. Please call us 24/7 at 877-247-ALLY (2559) or visit us online to chat at http://www.ally.com

  4. 10/19/2010
    3:45 pm
    charles price says:

    how do i purchase a cd in person, don’t like to buy on computer

    • 10/20/2010
      3:24 pm
      Ally says:

      Since we’re an Internet bank, we’re actually unable to open CDs in person, but we do have some options if you don’t want to sign up through our online process. There’s two other ways: you can either open up a certificate of deposit over the phone by calling us at 877-247-Ally (2559) or mail in your application. The below link has more information on how to open one of our CDs:

      http://www.ally.com/help/index.html#how-do-i-open-a-certificate-of-deposit

      Hope this helps and thanks for your interest!

  5. 12/2/2010
    5:08 pm
    Chris says:

    i just started a cd. Can i add additional money to it or do i have to start a new cd everytime i want to add money ?

    • 12/3/2010
      3:39 pm
      Ally says:

      That’s a great question, thanks for asking, Chris! Additional deposits cannot be made once you have started a CD, only at renewal. Here is a link to our CD Products FAQ page for some more details: http://www.ally.com/bank/high-yield-cd/#tabs=faqs. Also, feel free to give us a call 24/7 at 1-877-247-ALLY (2559) or chat us online if you have any other questions!

  6. 2/8/2012
    4:44 pm
    Marty says:

    Can Ally change the early withdrawal policy for an existing CD. In other words, for a 5 year CD that i have already held for 2 years, could Ally decide to change the early withdrawal penalty on this CD to 6 months instead of 2 months?

    • 2/8/2012
      4:46 pm
      Ally says:

      We’ll pass this along to our team over here, Marty. Should the change be implemented, we’ll be sure to let you know.

  7. 2/13/2012
    3:20 pm
    AlPease says:

    How do add a joint depositor to a current Certificate of Deposit, i.e., where do I find the form online to download, print, fill out and, and mail it?

  8. 3/2/2013
    12:12 pm
    Cjaise says:

    Can I add money to a muturing CD online or do I need to call?

    • 3/5/2013
      5:05 pm
      Ally says:

      Hey Cjaise, you can call us 24/7 at 1-877-247-ALLY (2559) and one of our Ally Care team members will be happy to assist you and answer any additional questions you may have. Thanks.

  9. 9/19/2013
    7:38 am
    Terryy says:

    I have a CD that is maturing in October. What steps must I take to close that out?

  10. 10/20/2013
    3:36 pm
    Anthony Silveri says:

    In your opinion as to a TOD and a POD, which is the better of the two. I have more then one CD and wonder if all must be listed as a POD?

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