Ally's brief CD rate hike wasn't a sign of things to come

Yields sign with arrow pointing up and dollar sign

Having a goodly sum on deposit at Ally Bank, I follow that institution closely.

On Oct. 14, while idly surfing the bank’s website (www.ally.com), I discovered something unusual:

Ally had raised the posted rate on its 2-year Raise Your Rate CD from 1.25% APY to 1.29% APY.

Having kept my eye on this "bump-up" CD since its introduction almost two years ago (I have six of them), I was sure this was a first for the product.

I asked Ally for historical data to verify my impression, but it was only willing to provide a list of rate changes for the past six months.

The Oct. 14 change was indeed the sole increase for this certificate of deposit during that period.

Since 2009, I’ve viewed Ally as a bellwether for where CD rates are heading -- and how fast they’ll get there.

That year, the Federal Deposit Insurance Corp. (at the not-so-subtle urging of the American Bankers Association) pressured Ally to lower its perceived lofty rates.

The allegation was essentially that, as an affiliate of GMAC -- which was getting a federal bailout -- Ally was unfairly taking advantage of government largesse to compete for deposit dollars.

The FDIC warned Ally to "focus on reducing … overall deposit costs."

Ally cut its CD rates about a week later.

Since then, Ally’s CD and savings rates, while remaining well above national averages, have steadily declined, consistent with those of other banks.

Given both the frequency and precision of Ally’s posted rate changes, the bank seems to apply some formula to make sure it’s not getting ahead of competitors.

(Ally has, however, used a 0.25% "loyalty reward" -- a program now extended to year-end to keep other banks from siphoning off its customers’ maturing CD funds.)

This apparent use of a formula is why the Oct. 14 rate increase came as such a surprise.

I had to ask myself whether the change augured a reversal in the seemingly endless downward spiral of 2-year CD rates.

As it turns out, no.

Less than a week after the increase, Ally reduced the 2-year rate again, back to 1.27%. It's fallen a couple times since then as well.

Perhaps the Oct. 14 increase reflected the correction of an earlier error by Ally in computing the proper rate under whatever formula it uses.

It had overshot on the downside and fixed the mistake -- temporarily.

Whatever the reason for the increase, it was sure nice while it lasted.

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