Ally Bank changes words, not policy, on CDs

(MoneyWatch) I've been writing about Ally Bank's 5-year CD for a couple of years now as a great place to stash your cash. At 1.65 percent, it's among the higher yielding options out there. And because the penalty for early withdrawal is just 60 days interest, it's a great place to earn a return while knowing that you can get your cash back if rates rise or you need the money. But I was shocked yesterday to get an email from Ken Tumin, founder of DepositAccounts.com, noting a recent change. DepositAccounts.com referenced a new amendment on page 27 of the disclosure document that read, "If we consent to the redemption of a CD or IRA CD prior to the maturity date, we will close the CD and impose a penalty."

To be sure, the penalty was still 60 days interest, but it was the words "if we consent" that startled me. This would imply that Ally could say no. That means the Ally 5-year CD would no longer be a place to stash cash you might need in the next five years. And it would remove one of the most attractive features of the CD -- the ability to pull your money out and move to higher yielding investments if rates rise. The website still listed the withdrawal penalty as 60 days interest, but sneaking in a change on page 27 of a disclosure statement sure seemed like it went against the company's "people sense" concept of doing what's right by customers because it makes good business sense.

I went into high gear calling and emailing my contacts at Ally. Waiting to hear back, I opened a $100 five-year CD with funds in my money market. The Ally representative assured me I could close it at any time for any reason, paying the penalty. I called back an hour later and closed the CD, paying the penalty that amounted to $0.27. I was told the funds would be available in two days.  The next morning, however, Ally called back to say the account cannot be closed in the first six days.  I'll have to wait a week in this (admittedly unusual) case.

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Still, this didn't assure me that Ally couldn't turn customers down in the future. Beth Coggins, Ally Bank Director of Public Relations, told me "there has not been a change in Ally Bank's policy for early withdrawals on CDs. Banks ordinarily will consent to the early withdrawal of a CD as long as the depositor pays the penalty."

Call me skeptical but, while it made me feel better, it didn't completely shut the door either that Ally could decide not to consent sometime in the future. It was the word "ordinarily" that worried me.

So I put phrased my question as follows:

Can customers pay the early withdrawal penalty and close the CD under either of these conditions:

• They need the cash
• Rates have risen and they want to move to money to a higher paying instrument, either with Ally or another financial institution.

Coggins researched the question and responded back with an email, "the answer to the two conditions is YES -- Customers can pay the early withdrawal penalty and close the CD under either of those conditions."

With this in writing, I'm happy to say I was wrong on Ally pulling a fast one.  This is good news for consumers, my clients, and me. I know of one financial institution that told me it would not allow an early withdrawal if the IRS placed a lien on the CD.  Perhaps the lawyers who manage the small print at Ally Bank requested the change to address that situation.