Savings Account rate higher than CD rate?

[jb90304]

I currently have BofA savings but want to switch to savings account w/ higher rates.
I was looking at Ally but came across something I didn't understand.
They have savings rate of 0.84%APY but the rates for 3 months, 6 months, and 9 months CD are 0.39%APY, 0.74%APY, and 0.74%APY, respectively, which is lower than the savings.
Now, why would any lock their money for months when its rates are lower than just putting it in the savings, is there a catch? I just need an explanation because it's bothering me. I'm very careful with my savings so I like to know as much as I can about everything before I committ.

[bjl584]

There could be aminimum deposit on the savings account, but if that is accurate, then it doesn't make sense to lock your money away in a CD.

IGOBanking has CD's up to 1.80% currently if you are rate shopping.

[disneysteve]

1. Some people simply don't pay attention.

2. Some people need to lock the money away so they don't spend it.

3. Some people depend on the CD income and want to know they have a set amount coming in each month.

4. Savings rate can and do change so some people prefer to lock in a guaranteed rate even if it is a little lower than the prevailing savings rate.

[snafu]

People need to think about how inflation [rising prices] affect their savings or buying power. At current rates CD holders are losing money each month since costs for good and services have been increasing substantively. Have you noticed increased food prices in your community?

[kv968]

4. Savings rate can and do change so some people prefer to lock in a guaranteed rate even if it is a little lower than the prevailing savings rate.

That's the main reason for the lower rate. Although rates shouldn't move much within such a short time period, they can and the 0.84% APY offered on the money market account is flexible and can be changed at any time. The CD's lock in that rate even though it is low.

[Kooshiball]

People need to think about how inflation [rising prices] affect their savings or buying power. At current rates CD holders are losing money each month since costs for good and services have been increasing substantively. Have you noticed increased food prices in your community?

I totally agree with you. In my opinion, putting the saving or CD is guranteed loss of purchasing power since inflation rate is way and way above 1% range (I would say 10% inflation rate now). Once war with Iran starts, all of the commodity price will skylocket and do expect $5gas is total possiblility. Putting some money in the bank for emergency fund or fund waiting for the investment are okay but I will never put money in the saving account permanently.

[phantom]

Ally has been adding a loyalty bonus of 0.25% to their CD rates when a CD matures and you choose to renew it. So, for someone renewing a CD, a 6 or 9 month CD at Ally with the bonus would have a better rate than an Ally savings account. The 3 month CD would still earn less than a savings account, but it could be worthwhile to put a small amount of money in a 3 month CD and then increase the term and the amount of money in it when renewal time comes and the bonus kicks in.

As far as I know, the 0.25% loyalty bonus is not mentioned anywhere on their site, and I don't know how long they'll keep it around for. I only know about the bonus because I have a ladder of 4 one year CDs at Ally as a part of my emergency fund, and the last several times one of them has matured, they have offered me the bonus. But, I have to admit that don't have much money in Ally right now because I get a slightly better rate on my savings account at my local bank than I can get on a one year Ally CD, even with the bonus.

[Petunia 100]

In my experience, when CD rates fall below savings account rates, the savings account rates soon follow.