confused about Ally CDs

[kaleida]

I was looking at Ally CDs yesterday and noticed something confusing. It seems to be a better deal to get a 5-year CD and withdraw it early, instead of getting a shorter-term CD...even if you know in advance you need to withdraw it after a shorter term. Isn't that weird? I wonder why do they do that?

For example....
- They have a 1-year CD with a 1.03% rate
- They have a 5-year CD with a 1.60% rate.
- All of their CDs have an early withdrawal penalty of 2 months interest.
- Suppose you put $10K in the 1-year CD ...you end up with $10,103.
- Suppose you put $10K in the 5-year CD and withdraw it after 1 year...you end up with $10,133 (that's 10 months of interest with the penalty even though it was there for 12 months)

Weird, huh? Why do you think they set it up that way?

[MakeAStash]

Perhaps because there is so much fine print with these offers and accounts most people don't realize they will be ahead despite a 2-month penalty.

[LuckyRobin]

My guess would be that most people don't bother to do the math.

[bjl584]

It's either an oversight, or there is some fine print that you haven't seen that would prevent you from actually doing this.

[disneysteve]

It's either an oversight, or there is some fine print that you haven't seen that would prevent you from actually doing this.

Not necessarily. There are periodically loopholes like that that the majority of people just don't notice. If you find one, go ahead and take advantage of it. I've done things like that in the past.

[thesimplemoneyblog]

Great find. Amazing what a little research and putting pen-to-paper can yield. Most people wouldn't read the fine print AND do the math to figure out if it is a good deal or not.