Are There Any Drawbacks to Certificates of Deposit?
Certificate of Deposit Disadvantages
Saving money for the future is always a good idea, but there are some things you should consider before opening a certificate of deposit (CD). A CD from an FDIC-member bank like Ally Bank is one of the best ways to save money for the future. Your money is insured up to the maximum allowed by law, and the interest rate can be higher than that of a regular savings account. Sometimes, however, there are two features of CDs that some see as certificate of deposit disadvantages, so it helps to know what you're getting into.
Early withdrawal penalties can eat into your return.
First, a CD is different from a regular savings account in that the funds remain in the account during the CD's term, which can vary from a few months to several years. If you withdraw from a CD before the term ends, you may incur an early withdrawal penalty. One exception to this is the Ally Bank No Penalty CD, which allows you to withdraw all your money, including interest earned, without penalty, any time after the first six days following the date you fund your account.
CD rates could rise during the term of your CD.
CDs usually come with fixed rates, which can help you accurately calculate your projected earnings. However, if you secure your funds into a fixed-rate five-year CD, for example, and rates rise, you may miss out on those higher rates. Ally Bank helps address this concern by offering Ally Bank Raise Your Rate CDs. With Ally Bank Raise Your Rate CDs, you have the option of a one-time rate increase if our Ally Bank 2-Year CD rate goes up; you have the option to increase your rate twice (two times) if our Ally Bank 4-Year CD rate goes up.
Once you’ve considered the disadvantages, be sure you consider the many benefits of saving with CDs. Ally Bank offers CDs in a wide range of terms to help you reach your savings goals. There’s no minimum deposit to open and all of our CDs are backed by the Ally Bank Ten Day Best Rate Guarantee. Whether you're interested in our High Yield CD, No Penalty CD or Raise Your Rate CD, you’ll get rates that are among the most competitive in the country and customer service that makes managing your CDs as simple as possible. Learn more at Ally.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.