Ally vs. Synchrony

[HGuy]

Hello all,

I am a long time reader and fan, and one of those quietly present, soaking up all the info on this site and similar others but I have not really been to this forum much and this is my first post. Anyways....

In addition to an an online savings account, I have had a CD ladder at Ally that I built over my first 3-4 years after residency, and I have been happy with them but this question keeps nagging me. Why shouldn't I cash all my CDs out (at once and pay the small fee or over a few years) and rebuild it at Synchrony ?? I've been reluctant because Ally has excellent reviews and a good interface but every time I do a little housekeeping at Ally it bugs the ************************ out of me that Synchrony pays significantly more. They are otherwise equals. Has anyone felt the same ? Has anyone switched over? If so, do you mind sharing your experience?

Thanks!

[Zaphod]

Whats the purpose of this ladder, percentage of non-invested fund and whats significantly more? I looked on their site and saw the highest for 5 years was only 2.35%. Thats barely inflation beating and not yielding much more than their savings accounts which come with far less strings.

[Donnie]

What do you mean by significantly more, 25bps? What is the breakage fee? It’s probably not worth it.

[wcireader]

I've had Synchrony high yield savings as my main savings account for some (more than 2, less than 5) years.

I also have a second checking account at Ally (main is CO360).

I have to say I've been very happy with Synchrony, in terms of being a bank with a good rate where I keep my money. I don't think they have 1 day transfers, but I don't really need them.

Ally does have more "bells and whistles" on their web site, though, if that is important to you.

I heard that some people had issues when Synchrony changed their interface some time ago, but I did not and it went smoothly for me.

[AdamMGrossman]

A couple of ideas for you:

1. I'll second the recommendation to do a break-even analysis.  I suspect that it may not be worth it to pay the penalties.

2. Even if the Ally rate is lower, I'd take a step back and evaluate how much you are actually losing in dollar terms.  Depends on your balances obviously, but I wonder if it's even worth your time to make the switch, even if the break-even analysis indicated that it would be worthwhile.

3. Another way to approach this would be to take new savings and deposit that at Synchrony, or whoever happens to offer the best rate at the time. If you really like saving with CDs, you could just continue that practice over time and not worry as much about your older CDs.

4. If your cash balances are really high, I'd think about moving some of that over into Treasury bonds (not bond funds, but actual individual bonds).  You could build a little ladder of Treasurys that dovetails with your cash to provide some higher yield.

 

[HGuy]

Purpose of the ladder is: basically it's part of my relatively large (120% of my yearly gross pay) e-fund, of which roughly 1/4 is in several 4 yr raise-your-rate CDs. I understand it's minimal money but it still pains me to potentially be able to get more yield on money I basically plan on never needing, so I worry about losing purchasing power on it over time. It bothers me further that the term I have them in has the widest spread and it requires me checking at least occasionally for 'raising my rate'. Ally's rates on common terms are:

12 mo = 1.55%

18 mo = 1.25%

3 yr = 1.55%

4 yr = 1.50% (but only offered in raise-your-rate version)

5 yr - 2.25%

Fees for early withdrawal for my 4 yr term CDs is 120 days of interest.

Synchrony, on the other hand.....

12 mo = 1.50%

18 mo = 1.45%

3 yr = 1.85%

4 yr = 2.00%

5 yr - 2.35%

 

[Zaphod]

HGuy wrote:

Purpose of the ladder is: basically it’s part of my relatively large (120% of my yearly gross pay) e-fund, of which roughly 1/4 is in several 4 yr raise-your-rate CDs. I understand it’s minimal money but it still pains me to potentially be able to get more yield on money I basically plan on never needing, so I worry about losing purchasing power on it over time. It bothers me further that the term I have them in has the widest spread and it requires me checking at least occasionally for ‘raising my rate’. Ally’s rates on common terms are:

12 mo = 1.55%

18 mo = 1.25%

3 yr = 1.55%

4 yr = 1.50% (but only offered in raise-your-rate version)

5 yr – 2.25%

Fees for early withdrawal for my 4 yr term CDs is 120 days of interest.

Synchrony, on the other hand…..

12 mo = 1.50%

18 mo = 1.45%

3 yr = 1.85%

4 yr = 2.00%

5 yr – 2.35%

 

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You are losing purchasing power to inflation on almost all of these anyways. Your efund is ridiculously large. Have you considered putting a small portion into an index or tax managed type fund, maybe 20%? Give it a chance to grow, etc,

[AdamMGrossman]

HGuy, here are further thoughts on this:

1. I think Ally's "raise your rate" deal is a little phony. Here's why: the deal is that they'll allow you to raise your rate in the future but only, "if our rate on your term and balance tier goes up".  The problem is that they don't offer the same terms (2 or 4 year) in standard CDs.  They conveniently offer practically every other term *other than* 2-year and 4-year in their standard CDs.  That means that they can keep the rates on their raise-your-rate CDs depressed so that you have less opportunity, in reality, to be able to raise your rate.  That strikes me as a consumer-unfriendly game.  In fact, you can see that they are actually doing this: the rate on the raise-your-rate 4 year is the same as the rate on their standard 3-year.  They are intentionally keeping those 4-years low because they don't want to let you raise your rate!

2. I don't know how big your balances are, and how many years you have left on these CDs, but here's how the breakeven would work out on your 4-year CDs:

• At 1.5%, a 120-day penalty translates into 0.5% (120 days = ~one-third of a year).  So that's what you're giving up.


• If you move to Synchrony, they'll pay you 2.0% instead of 1.5%, so the incremental interest will be 0.5% per year.


• That means the breakeven period is one year.  If you have more than one year left on your 4-year CDs, then it's worth it to pay the early-withdrawal penalty and switch to Synchrony.

3. To take a step back, it's worth giving thought to the size of your emergency fund.  It sounds to me like it's on the larger side.  I'm curious what makes up the other three-quarters of your e-fund.  Also curious about the stability of your job.  If your risk is low of becoming unemployed or of some unexpectedly large expense, then maybe you can scale back the overall size of your e-fund.  That would allow you to use your funds more productively, and it would also minimize the degree to which half-point differences in CD rates matter to your overall financial picture.

[HGuy]

AdamMGrossman wrote:

HGuy, here are further thoughts on this:

1. I think Ally’s “raise your rate” deal is a little phony. Here’s why: the deal is that they’ll allow you to raise your rate in the future but only, “if our rate on your term and balance tier goes up”.  The problem is that they don’t offer the same terms (2 or 4 year) in standard CDs.  They conveniently offer practically every other term *other than* 2-year and 4-year in their standard CDs.  That means that they can keep the rates on their raise-your-rate CDs depressed so that you have less opportunity, in reality, to be able to raise your rate.  That strikes me as a consumer-unfriendly game.  In fact, you can see that they are actually doing this: the rate on the raise-your-rate 4 year is the same as the rate on their standard 3-year.  They are intentionally keeping those 4-years low because they don’t want to let you raise your rate! I agree they are artificially keeping the rates down - hence it continuing to nag me. It also nags me that I could tie my money down for 25% less time and still get the same rate and lower early withdrawal penalty.

2. I don’t know how big your balances are, and how many years you have left on these CDs, but here’s how the breakeven would work out on your 4-year CDs:

• At 1.5%, a 120-day penalty translates into 0.5% (120 days = ~one-third of a year).  So that’s what you’re giving up.


• If you move to Synchrony, they’ll pay you 2.0% instead of 1.5%, so the incremental interest will be 0.5% per year.


• That means the breakeven period is one year.  If you have more than one year left on your 4-year CDs, then it’s worth it to pay the early-withdrawal penalty and switch to Synchrony. Great math here and very helpful! Thanks!!

3. To take a step back, it’s worth giving thought to the size of your emergency fund.  It sounds to me like it’s on the larger side.  I’m curious what makes up the other three-quarters of your e-fund.  Also curious about the stability of your job.  If your risk is low of becoming unemployed or of some unexpectedly large expense, then maybe you can scale back the overall size of your e-fund.  That would allow you to use your funds more productively, and it would also minimize the degree to which half-point differences in CD rates matter to your overall financial picture. Yes, it's kind of large - lets me sleep better. More stable job now than when I first set it up. Another 1/4 of my e-fund is in cash (online savings account), the rest in Muni funds and actually a sizable chunk in index stock funds.  I do worry about insufficient return on it, hence the post.

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[HGuy]

Zaphod wrote:

You are losing purchasing power to inflation on almost all of these anyways. Your efund is ridiculously large. Have you considered putting a small portion into an index or tax managed type fund, maybe 20%? Give it a chance to grow, etc,

See my answer to AdamGrossman, but yes it's kind of large and yes it's diversified ( since i built it on the bigger side ) I even have a good 1/3 of it in diversified stocks. The CD ladder component makes up only about 1/4 of my e-fund. Good point though.

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[AdamMGrossman]

HGuy: If your emergency fund contains stock index funds, then I would suggest defining your fund more narrowly.  In my view, you should include only the CDs and cash in a true emergency fund.  The munis are pretty safe but still carry risk, and stocks obviously carry a bunch of risk, so I would exclude both of those from your definition of your emergency fund.

If you look at just your cash/CDs, I wonder what % of your annual expenses that amounts to.  I think six to nine months of expenses in cash represents a good e-fund.  If you wanted a year in cash, I think would be very conservative at this (stable) stage of your career.

If you want to share info on the other components of your fund, I'm happy to provide feedback on them.

[HGuy]

Sorry for the delay - been  busy!

You are right on your last reply - I should have defined my efund better in the post. What I consider my true E-Fund is my cash (25k in Ally's online savings, an extra 15k lying around), my Ally CD ladder (50k) referenced on my OP plus my taxable Vanguard funds (70k mostly in munis, and some in dividend appreciation fund and tax-managed fund). I know it needs tweaking: for example I want to build up a bit more cash. It represents a full year of my family's expenses (incl student loans) and about 1/2 of my gross yearly pay. And yes, it is large - but I sleep so much better knowing I have it.

I also have what I consider my "second-layer efund", which is a taxable investment account containing a little cash and individual stocks. I know it doesn't really qualify as E-fund because they are stocks but they are mostly value stocks. I typically buy and hold, and take the dividends. I wanted to play around a bit as well.

Going back to my original question, one of the fixes I think my efund needs is to improve on its return, hence me wondering about moving my online savings account and CD ladder to Synchrony.

[Veiled]

HGuy wrote:

Sorry for the delay – been  busy!

You are right on your last reply – I should have defined my efund better in the post. What I consider my true E-Fund is my cash (25k in Ally’s online savings, an extra 15k lying around), my Ally CD ladder (50k) referenced on my OP plus my taxable Vanguard funds (70k mostly in munis, and some in dividend appreciation fund and tax-managed fund). I know it needs tweaking: for example I want to build up a bit more cash. It represents a full year of my family’s expenses (incl student loans) and about 1/2 of my gross yearly pay. And yes, it is large – but I sleep so much better knowing I have it.

I also have what I consider my “second-layer efund”, which is a taxable investment account containing a little cash and individual stocks. I know it doesn’t really qualify as E-fund because they are stocks but they are mostly value stocks. I typically buy and hold, and take the dividends. I wanted to play around a bit as well.

Going back to my original question, one of the fixes I think my efund needs is to improve on its return, hence me wondering about moving my online savings account and CD ladder to Synchrony.

Click to expand...

Investments are to emergency funds what active duty personnel are to reserves. They're fundamentally different (almost mutually exclusive). An invested dollar is hard at work making you more money and shouldn't be drawn down until that work is finished; an efund dollar lives for availability on the timeline you may need it.

While it's nice if your efund doesn't depreciate with inflation, efunds are not a place to make money. And while a catastrophic event (i.e. lawsuit stripping you of all your retirement savings) may force you to recall your soldiering investment dollars, investments should not be viewed as money in your pocket.

If your IPS/risk tolerance dictates that you hold a large efund, great. Split it into things that will protect your money from inflation by gauging how much you might need in 1, 2, 5 (etc) years. I wouldn't stress too much about making your efund earn money; just try to avoid a loss.

Draw a line between your efund (CDs, cash) and your investments (stocks or bonds in your taxable account) and figure out what this means for any changes you want to make. Is this drive to earn with your efund motivated by a desire to grow your net worth? Then maybe the answer isn't "get more cash" as you say, but to allocate some of this money toward true investments, now that you're in a more stable position.