Closed End Funds: what the Heck are they?

Closed end funds are not the easiest concept to pick up by amateur investors. They are a little bit like stocks and a little bit like open-ended mutual funds (what most people commonly think of when they think of ‘mutual funds’). As such, they are a little off the beaten path for most investors. To understand what they are and how they are priced, you first have to understand how mutual funds work. Once you understand, you might be tempted to invest in them since they often trade at premiums or discounts to their values. If you’re an amateur investor, it could be a risky game to get into. They can also provide unique opportunities.

Closed End Funds vs. Open End Funds

Open-ended funds rule the mutual fund world. Most funds in your employer’s 401K fall into the open end category. When comparing open-end funds to closed-end funds there are two main factors to consider:

1. How many shares there are.
2. How they are priced.

How Many Shares

The first difference between the two is how many shares there are. Closed-end mutual funds are offered up in an IPO. This means that there is a set number of shares which are offered on a stock market. The number of shares does not change as a result of new investors putting money in the fund. If you buy shares, it’s because an investor was selling theirs. With open-end funds, on the other hand, there is a limitless number of shares. You do not need an investor to sell you their shares. You buy new shares, and new shares are created for you. There is no exchange of shares from one investor to another.

How Open Ended Mutual Funds are Priced

You may be wondering how the share price of open-end funds is calculated. Open-end fund share prices are bases solely on the net asset value (NAV). This is basically how much the total value of all its investments are worth, divided by the number of total outstanding shares. The NAV is the price you buy or sell a share at. This NAV is calculated at the end of each trading day.

How Closed End mutual funds are Priced

Much like with open-end funds, closed-end funds have a calculated NAV (total value of underlying investments divided by number of shares). However, this is often not what the shares are priced at. Since shares are traded on the open market, the shares can trade at a discount or premium to the actual NAV, based on perceived value of the investor.

Closed End Funds Trading at Discounts to NAV or Premium?

Common sense would lead you to believe that a closed end fund trading at a discount to its NAV would be a good buy. And especially one trading at a 5, 10, or 15% discount. Similarly, it would intuitively make sense that one selling at a 10% premium to its NAV would be ripe for selling.

So why do closed end fund prices vary so much from the NAV? That’s one of the true mysteries behind them – and probably a good reason why amateur investors should be careful in getting into that game. Who’s to say that a closed ended fund trading at a 5% discount to its NAV won’t end up trading at a 15% discount to its NAV? Not me.

Related Posts:

• Index Funds Vs. Mutual Funds
• ETF’s vs. Index Funds
• Zecco Review
• TradeKing Review

A couple of big name people with a lot of money and friends with money, Mark Cuban and Tony Robbins, basically say that now is not the time to be putting money into the market. At the least, they bring up some interesting points that you might want to consider. And I have a slightly different take than either of them. But let’s start with Cuban.

Cuban’s Take on the Market

Back in May, I highlighted Cuban’s commentary on why the market is becoming harder and harder to make money in by investing in fundamentally strong companies.

This week, Cuban wrote a new post, poetically titled “The Stock Market is Still for Suckers & Why you Should Put your Money in the Bank“. Geez, Mark, could you be a little more direct, please?

The basic premise of his post is that ‘capital is no longer expensive and it is no longer scarce’, and until it becomes scarce, it’s going to be hard to make money in the market, or elsewhere, so you should hold on to your money.’

I think the points in his ‘what business is Wall Street in‘ post were a lot more spot on, but this one brings up some interesting points as well. Cuban thinks that the stock market is no longer for him or for any average investor. It’s too risky, too panicky, and too manipulated. Over the last few years, it’s hard to argue with that.

Tony Robbins Economy Rant

The next is Tony Robbins. Now, I’m not a big Tony Robbins fan, in the least, but his 23 minute rant is entertaining and he brings up some good points (unfortunately he rambles quite a bit).

Here’s the first of two videos:

If you don’t have the time to sit through all 15 minutes and 8 minutes in the sequel, here’s a summary:

• He has a lot of friends with a lot of money who correctly predicted back in early 2008 that the market was headed for a big crash. They are now saying the same thing again and getting out of the market.
• This is the longest period of unemployment (time it takes to get a job) in modern history.
• The housing market is absolutely horrible now that the stimulus money is gone, and it’s getting worse.
• The baby boom generation is no longer spending and they were the reason why we had such huge economic growth (financed by debt). Without them spending, there will not be a recovery in the near future and many companies will struggle.

I don’t take much stock in his first point, but the next two are true and backed up by statistical data. The last point is opinion mixed with some fact, but I think it’s a good point. When a generation fundamentally changes their consumption habits and over 70% of the economy is based on the previous consumption habits…. you’re in for some hurt from an economic standpoint, even if the fundamental switch to saving has its benefits. And we are seeing that happen.

And Here’s my Own Bigger Picture Rant…

I agree with some of Cuban and Robbin’s points, but I have a slightly different big picture take on what we’ve seen happen to the market over the last 10+ years now (where absolutely zero capital gains have resulted from the market as a whole) and where it might be headed.

The market gains over the last century have been driven by productivity increases. First it was the industrial revolution, airplanes and cars, advancements in health and medicine, then the computer and other electronic technologies, and finally the Internet and data/information advancements. And all of those things were driven by harnessing energy from cheap fossil fuels and the globalization of economies from around the world.

There’s still room for some gains in the market driven by improvements in all of these areas, and particularly at the micro level with individual companies, but I think we’re at a point in history where the gains are going to be minimal from the market as a whole. We’ve extended people’s lives beyond what is natural. We’ve solved transportation to the point that you can go anywhere in the world. We’ve solved cheap energy (for now). We’ve solved taking from the planet to create buildings and products that we can sell. We’ve solved data exchange. And we artificially inflated growth with debt and played that game out.

We’re not going to see huge gains (as a whole) in equity markets until we see the next big thing that completely changes human life as we know it. When or what could that be? I have no idea. What should you do with your money? I can’t tell you that (because I have no idea). But what I can tell you is that living frugally within your means, saving your money and having a big position in cash for emergencies and tough times, and building your skills and career to be economy-proof are all things that you can’t go wrong with. Prepare for the worst and hope for the best.

What’s your take?

TradeKing Review

Last fall I made the switch to TradeKing for my traditional and Roth IRA’s. I’ve been promising a TradeKing review for a while, so this is long overdue. Having held discount broker accounts with ETrade, Zecco, TradeKing, Scottrade, Fidelity, Schwab, and a few others, I have a little more experience in this area than I’d probably like to, so hopefully this review provides some useful discount broker comparisons and commentary.

What is TradeKing?

TradeKing is an online discount broker that has a low fee trading structure and strong customer service. Plain and simple. I’ll get into what types of accounts you may want to consider opening or moving to TradeKing in a bit. You can trade stocks, funds, options and other equities through TradeKing.

TradeKing Trading Fees:

Let’s cut right to what most of us care about the most when it comes to investing online with a discount broker – the fees.

• Stocks: $4.95 (online and even broker assisted on the phone)
• Options: +$0.65 per contract

Other than Zecco, which charges $0 for trades (for accounts over $25,000 in balance, otherwise they are $4.50 per trade), and OptionsHouse (geared towards options traders) at $2.95 per trade, TradeKing’s trading fees are the lowest price of any legit discount broker that I am aware of.

I have my non-retirement account with Zecco because of their low priced trades (check out my Zecco review), and my IRA’s with TradeKing. I’ll tell you why I went with both in the next section.

Other Fees:

Here’s where TradeKing really excels. Whereas some discount brokers try to nickel and dime you with account inactivity fees and IRA fees, TradeKing does not. If you trade lightly or not much at all, you don’t have to worry about getting an account inactivity fee or account maintenance fee (they don’t have either). They also don’t have an annual IRA fee (Zecco charges a $30 IRA fee, which is why I chose to move my IRA’s to TradeKing instead).

TradeKing’s price to buy in to mutual funds is a little bit higher than some discount brokers who offer a number of no-fee funds, at $14.95 to initially buy into a fund, but still very competitive to other broker’s funds with fees (i.e. E-Trade funds cost $19.99). If you prefer ETF’s over funds, that’s not really an issue. Here is a complete list of TradeKing fees.

Minimum Balances:

TradeKing has no minimum balance for their accounts. This is a key factor for someone just getting into investing for the first time, who might not have a lot of money to put into an account right from the get go.

TradeKing Customer Service:

The one time that I called in, I got someone on the phone right away, that person spoke great English, and they followed up with a promised email with documentation minutes after the call. This year, Smart Money rated TradeKing #1 in customer service in 2010 and gave them a 5 star (out of 5 ranking).

For those who like the chat customer service option, TradeKing offers live chat support 8 AM – 6 PM Monday through Friday. No complaints here.

TradeKing Trading Tools:

TradeKing certainly doesn’t skimp on their tools. With all of the discount brokers I’ve used and the tools included for free in their interfaces, TradeKing can’t be beat in this area. Quickly summarizing each of their tools:

• MarketGrader Research Reports: This is basically an analytical analysis tool that grades stocks (not dissimilar from Morningstar) and whether analysts predict then to outperform or not.
• Technical Analysis: For experienced traders who use the charts, TradeKing provides chart pattern recognition, price forecasting and full educational support.
• Interactive Charts: includes volatility and technical indicators.
• Maxit Tax Manager: A cost-basis and tax reporting tool to help make things easier around tax time.
• Other Tools: probability calculator, profit & loss calculator, options calculator, options scanner, and stock screener.

Banking Services:

This might be an area where you’d be disappointed if you were interested in banking services in addition to trading services. TradeKing is not a full-service bank, so don’t expect a debit card, checking account, mortgage loans, or other bank related services.

Final Thoughts:

It’s one of the two discount brokers I use at the moment, so obviously, I like them. Good service, account security, low trading fees, and no other fees to screw you over. I’d recommend using them for both a regular trading account and a retirement account.

TradeKing Promotions:

• TradeKing is currently offering $150 in reimbursements for those who switch a non-retirement account to them.
• They also offer a $50 referral fee if you refer a friend ($50 for both you and your friends).
• Through the end of August (this month), TradeKing is offering $50 when you start a new account (note, they usually only offer this promotion once a year). You are also still eligible for the $150 in reimbursements for switching to them with this promotion.

One of my two discount brokers of personal choice, TradeKing, just started running their annual $50 cash back promotion. I use TradeKing for my IRA’s because they don’t have an annual fee or inactivity fee  on their accounts and their trades are only $4.95 each (I use Zecco for my non-retirement account because I get free trades – but, unfortunately they charge $30/yr. for IRA’s).

Beyond great prices, TradeKing was voted recently by Smart Money as having the top customer service of any discount broker and the top trading tools as well. In my opinion, the offer up the best value of the discount brokers.

Here are the details on this promotion:

• New accounts must be opened and funded with $2,500 or more.
• Account funding must occur within 30 days of account opening.
• One trade must be executed within 180 days of account opening, for account to qualify.
• The minimum funds of $2,500 must remain in the account (minus any trading losses) for a minimum of 6 months or the bonus credit may be surrendered.

Note that if you aren’t able to open an account at this level, TradeKing is still a great option because they don’t have any account minimums. Everyone is also eligible to get the $150 in transfer fees reimbursed if you move over from another broker for a non-retirement account.

If you are interested in this promotion, you can only get it via a special TradeKing $50 bonus promotion link. This is a limited promotion, so you won’t find the offer on their home page. This offer ends August 31st!

(Update: I have since added a complete TradeKing Review)

If you’ve visited a brick and mortar local bank or credit union branch in the past few months, you’ve probably been asked the question, “would you like to opt in to overdraft protection service?”. On the surface, ‘overdraft protection service’ sounds like something you might want. “Sure, why wouldn’t I want to be protected against overdraft charges??” was my initial line of thought. Upon closer inspection, I began to think a little differently.

Overdraft Fees: The No Permission ‘Service’ Fee

At my local bank, the kind teller made it sound as though the bank had gone above and beyond competition by offering me ‘overdraft fee protection’ in the past. In reality, they were charging me a $35 ‘convenience’ fee for covering purchases that I didn’t have enough of a balance to cover with my debit card. Up until now, banks were able to automatically enroll you into this service. Not anymore.

The Federal Reserve is beginning to require financial institutions to get your permission to enroll you in a program that covers overdrawn debit and ATM transactions for a fee. The rules took effect July 1 for new customers and will kick in Aug. 15 for existing checking account customers.

Your two options look like this:

1. Enroll for ‘overdraft protection’.
2. Don’t enroll for ‘overdraft protection’.

What is Overdraft Protection?

If you decide to enroll for overdraft protection, your bank or credit union will ‘save you the embarrassment’ (as many of them are phrasing it) of having your debit card declined by covering the charge that you have made. For this ‘convenience’, they will tack on an overdraft protection fee. Often times, this fee is in the range of $30-$40. Enrolling in overdraft protection often means keeping things the same way that they’ve been in regards to bank overdraft fees.

Note that the new federal opt-in requirement does not apply to checks. It only applies debit card and ATM transactions.

What if I Opt Out of Overdraft Protection Services?

Simply declining overdraft protection service is the equivalent of saying, “If this charge takes me below a $0 balance in my checking account, then don’t let the purchase go through.” You will not be able to make the purchase, but you will also save yourself the overdraft service fee.

Not only do you save the fee, but not being able to make the charge gives you a warning that you’re out of money in your account. This, in itself, is an automatic protective measure against spending money that you don’t have.

Simply ask yourself if being charged $35 to avoid getting your card turned down for a $2 cup of coffee is a service that you really want.

Playing devil’s advocate, if you have an emergency, and are willing to accept the overdraft fee, you will want to choose a bank that has a forgiving overdraft policy. I’ve highlighted a few examples below.

How Online Banks are Handling Overdraft Protection Fees

I can’t tell you how your local bank or credit union is handling overdraft fees, but I can give you an overview of how the national online players are handling them at the moment for comparison. In general, they are very lenient in comparison to the standard $35 fee that most banks have charged historically. Here’s a look at the three best policies towards overdraft fees that I was able to find for online checking accounts.

Ally Bank Overdraft Fees

Ally Bank does not charge you for an ATM or debit card overdraft (but your transaction probably will not go through). They have a $9 daily 1-time maximum fee for checks. Ally also lets you link your checking account to an Ally savings or money market account so that if you overdraw funds from your checking, it will automatically transfer from one of them. They do not charge a fee for this (most banks do). All-in-all, Ally is very consumer-friendly in these overdraft policies.

Ing Direct Overdraft Fees

Ing Direct’s Electric Orange account has an overdraft fee calculator. They charge a small APR (recently 7.25% APR) on the overdraft versus a dollar amount. The overdraft fees end up being very low. For example, at current rates, if you overdraft by $1,000 and maintain that negative balance for 10 days, you’d only pay $1.99 in overdraft fees. If you’re looking for some leeway with overdrafts and don’t want a hard-stop, this is not a bad option.

Everbank Overdraft Fees

Everbank’s checking account overdraft fee is similar to Ing Direct’s in that they charge a % rate (currently .03% daily), which equates to about 10.65% annually.

Overdraft Fee Discussion:

• Has your bank approached you about the overdraft protection fee changes? How did they phrase the opt-in to you?
• Have you opted in to an overdraft protection service? Why or why not?

Related Posts:

• Everbank MarketSafe Metals CD
• Ally Bank Rising Rate CD
• How to Wipe Out Bank Overdraft Fees

PerkStreet Doubles their Debit Card Rewards Program

As of this week, PerkStreet Financial ^(SM) is now doubling the base rewards for non-PIN based transactions to 2% (from 1% previously). You will get 2% cash back on these transactions when your balance is $5,000 or more. If your balance is under $5,000, you will go back to 1% cash back. Not only is this unheard of amongst debit card rewards programs, but there are very few, if any, credit card providers that TRULY will give you a 2% cash back reward as a base.

What is PerkStreet Financial? A Free Checking Account with a Visa® Debit Card with Cashback Rewards

I had previously written a PerkStreet Financial review and claimed that PerkStreet was the go-to debit card rewards program around at the time. Well, they have gone and one-upped themselves with their latest cash back rewards incentives. If you are looking for a debit card with the best rewards program,  to avoid annual fees on credit cards, or to simply protect yourself from spending money that you don’t have by using a debit instead of a credit card, I don’t have a better recommendation.

5% Cash Back Rewards

Also, PerkStreet is now offering 5% cash back for the rest of June and July when you:

• purchase ice cream at Ben & Jerry’s, Culver’s, Dairy Queen and Cold Stone Creamery
• make home improvement purchases at Lowe’s, Home Depot and Menard’s
• buy gas by paying at the pump

If you are taking any big summer road trips or doing any major projects around the house, this would be a huge opportunity to take some of that money back.

They will announce other seasonal opportunities to earn up to 5% throughout the year.

Other PerkStreet Financial Benefits

- Only $25 deposit to open your account
- your first box of checks are free
- no fees for using your account
- set up direct deposit with your employer
- nationwide network of 37,000 ATM’s (largest in the nation)
- FDIC insured up to $250,000 through a partnership with Bancorp Bank to offer financial services
- free online banking and bill pay
- no account minimums

Thumbs Up

Until I see a better offer, PerkStreet Financial gets my thumbs up for being the best debit cards reward program in the country. Considering that I haven’t seen one with over 0.5% cash rewards, that might be a while.

What is Zecco Zap Trade?

Ever get tired of flipping between 3 or 4 different browser windows to keep track of your desired portfolio, real-time-quotes, and then to actually make the trade through your discount broker? We’ve all been there. That’s why I was pretty excited when Zecco launched a nifty little Firefox plugin last week that allows you to instantly get a real time quote and trade when the plugin (called Zap Trade) detects a ticker symbol within your browser.

Zap Trade is a free Firefox plug-in that lets investors place stock trades and get real-time quotes while visiting popular investment and research websites. Here’s how it works:

1. Click the [Z] on select sites when scrolling over a stock ticker (anything that Zap Trade detects is a ticker is highlight in purple).
2. ZapTrade opens up in a pop-up window & you can get a real-time stock quote.
3. Complete the trade, if you so choose, without leaving the site you are on.

How I am Planning on Using Zap Trade

I really like this tool because I rarely use my stock broker to research the stocks/funds that I want to buy or potentially sell off. I typically use Google Finance for most of that. What I plan on doing is creating a portfolio of stocks that I am interested in buying within Google Finance (which also offers real-time quotes) – so that all of my potential trades can be traded from in one browser. From there I can scroll over the ticker, open Zap Trade, and make a trade if the stock/fund is at a price that I want to buy or sell at.

Requires a Zecco Account

Note that to use Zap Trade, you will need a Zecco trading account. I use Zecco for my personal account because I get 10 free stock trades every month (must have an account balance of $25,000 or more, otherwise trades are $4.50/each) and they have zero annual or inactivity fees – making my cost to use them as a discount broker absolutely nothing. I have done a thorough Zecco review in the past. I’ve been very happy with them as a discount broker.

Check out the video on the Zap Trade site to see the plugin in action.

I just got the news of a pretty amazing offer for opening a new high yield savings account with WTDirect (they claim it’s their biggest offer ever). Starting now through June 15, if you sign up for a new WTDirect Savings Account, you will get $100 for every $10,000 deposited, up to a maximum of $50,000 (for a $500 bonus). I’ve never seen a new savings account cash bonus offer that high, so it might be worth checking out.

Here’s how the WTDirect New Savings Account Offer Works:

1. Open a new savings account and fund it by June 15.
2. Every $10,000 in deposits gets you a $100 bonus (to a $500 max)
   
3. Maintain the balance for 3 months.
4. You get your cash bonus at that point.

Make note of the restrictions, here.

WTDirect boasts that they have a savings yield in the top 5% of U.S. banks. Right now it is 1.16% APY. If you’ve been thinking about opening a new savings account and have enough cash to take advantage of this offer, it is definitely worth a look (they have a calculator to see how much you can earn on your deposits compared to other online banks).

Related Posts:

• Ally Bank Raise your Rate CD Review
• Perkstreet Financial Review

Kelly, a 20somethingfinance reader, passed along a blog post from Mark Cuban the other day that takes a different approach to basically saying the same thing I said in my post about the May 6 stock market crash – the market is no longer a place where buy and hold amateur investors can thrive and prosper.

“Traders the Equivalent of Hackers”

It’s titled, “What Business is Wall Street in?“, and I’d recommend giving it a read. It’s a bit of a longer post, so I’ll highlight some of Mr. Cuban’s finer points. First, Cuban likens Wall Street traders to hackers – justifying their existence through questionable benefits to their industry. He then questions the present state of investing versus it’s original purpose:

“Wall Street is no longer what it was designed to be.  Wall Street was designed to be a market to which companies provide securities (stocks/bonds), from which they received capital that would help them start/grow/sell businesses. Investors made their money by recognizing value where others did not, or by simply committing to a company and growing with it as a shareholder, receiving dividends or appreciation in their holdings.  What percentage of the market is driven by investors these days?“

A Scary Testimony

What’s somewhat rewarding, as an amateur investor – and horrifying at the same time, is Cuban’s admittance that he feels like there is too much stacked against him as an investor these days:

Over just the past 3 years, the market has changed. It is getting increasingly difficult to just invest in companies you believe in. Discussion in the market place is not about the performance of specific companies and their returns. Discussion is about macro issues that impact all stocks. And those macro issues impact automated trading decisions, which impact any and every stock that is part of any and every index or ETF.  Combine that with the leverage of derivatives tracking companies,  indexes and other packages or the leveraged ETFs, and individual stocks become pawns in a much bigger game than I feel increasingly less  comfortable playing. It is a game fraught with ever increasing risk.

What’s scary about this statement is that it’s coming from Mark Cuban. The man is worth $2.8 billion. If a savvy businessman with that kind of capital can’t find his way around the stock market and get proper guidance in how to profit from it – and feels like the little guy getting screwed by Wall Street insiders…. well, you can see where I’m going with this.

Dividends Keeping Him in the Game

Cuban then highlights his investing strategy at the moment – and it’s a good one that I believe in:

The only thing that keeps me in the market is that most of the stocks (not all) pay dividends or some other sort of cash payout.

According to Steven Johnson, director of simcivic.org, “Capital growth in the S&P 500 averaged 2.3% a year from the mid-1920′s to the mid-1990′s. Dividend yields average 4.6% a year, for a combined gain of 7% a year.” That means that 2/3rds of all returns in the S&P 500 over 70 years was from dividends. That is very compelling. And it’s a strategy that I’m starting to believe more and more in over the years.

Cuban’s Solution

My favorite part of Cuban’s post is that he highlights some solutions for this problem that make sense:

My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business.  Whether its through a use of taxes on trades, or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 5 years or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.  However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy.  It won’t come from traders trying to hack the financial system for a few pennies per trade.

Bravo, sir. Now if we can only get you a job as the head of the SEC.

Mark Cuban Discussion:

• What do you think about Cuban’s points?
• Are you bothered by the fact that a person with Cuban’s wealth can’t find his own way around the market?
• What would you do to fix Wall Street in order for it to be a welcoming place for the little guy again?

Related Posts:

• How to Make a Stock Trade
• Index Funds Vs. ETF’s
• Zecco.com Review

The likelihood of interest rates for bank deposits increasing from the historical lows that they are at now is pretty high. I personally have been sitting on the sideline with cash, or investing in lower time commitment (3 & 6 month) and subsequently lower yield Certificate of Deposits (CD’s) because I’ve been anticipating an increase.

If you’ve been in the same situation, you might want to look into a ‘raise your rate’ CD. I discovered one of these offered by Ally Bank, called the Ally Bank Raise Your Rate CD. I didn’t have any luck finding a similar option at another bank, so if you are able to, please share in the comments.

What is a ‘Rising Rate CD’?

Essentially, a ‘rising rate CD’ is a Certificate of Deposit that allows you to increase the interest rate from whatever it is at the time you make your deposit to a higher interest rate at a later time within your CD’s life. It is a great option if you want to make a decent yield on your savings at a rate higher than a savings account, but are fairly certain that rates will go up during the length of your CD’s term. We’re exactly in that situation right now, in my opinion. I can’t see interest rates staying at these historical lows for much longer, particularly with the impending inflation coming from the debt our country is in. So why not earn a decent yield now and an even better yield later?

The Ally Bank Raise Your Rate CD

I’m a big fan of Ally Bank because they really do offer products that are in their customers’ best interests. The Ally Raise Your Rate CD is definitely one of those products. It is a 2-year term CD with some great features that put it at the top of its class:

• Open with $0 – no minimum to open
• No monthly fees for the CD
• Ten Day Best Rate Guarantee – note that this is one of my favorite features. Instead of taking whatever the interest rate is the day you fund the CD (like most banks), Ally will apply the best interest rate within ten days of opening or when your Ally CD renews, you automatically get the best rate offered during those ten days.
• Daily compound interest for maximum earnings (most banks do monthly or quarterly compounding).
• FDIC insured.
• Automatic renewal at maturity – Initial deposit plus earned interest

But, the key feature, and the reason that I thought this product was worthy of review on 20somethingfinance, is the ability to ‘raise your rate’ on the CD. If, at any point, during the 2 year CD term you would like to increase your initial interest rate yield to whatever it is at the present time, you can call Ally and ask them to increase the rate. And there is no cost to do so. How beautiful is that? Protection, or insurance, against rising rates! Now there is no excuse to sit on the sidelines with your cash because you are afraid rates will increase.

Bank CD Rate Comparison

How do Ally Bank CD Rates compare with other banks? Pretty darn well, actually. At the time of this post, Ally is offering 1.99% on this CD (you may want to check their site for the latest rate). At the same time, their biggest online bank competitors were offering much less for the same term – Ing Direct at 1.10%, Bank of America at 1.10%, Chase at 1.01%, and HSBC Advance at 0.75%. I’d encourage you to compare Ally’s yield at the time you read this with the other banks listed to make sure it is still the best. But as of right now, they are not only beating the competition, they are blowing it out.

Any Downsides to the CD?

I always try to give fair product reviews and cover the downsides. No erroneous fees – check. No high minimum – check. No huge penalty for early withdrawal – check. Like most CD’s, the Ally Raise Your Rate CD has an early withdrawal fee if you pull your money out before it matures. The early withdrawal fee is 60 days of earned interest, which is actually much more lenient than other CD’s that I have owned. I couldn’t find any downsides or ‘tricks’ to screw over the little guy in the fine print.

Final Thoughts on the Ally Raise Your Rate CD

If you’re in the market for a CD or have cash sitting around in a checking or savings account, I don’t think there is a better CD on the market right now than the Ally Bank Raise Your Rate CD. If you’re looking for an alternative CD, you might want to check out my review on the EverBank MarketSafe Diversified Metals CD, but that closes May 13.

Ally Bank CD Discussion:

• Have you purchased a CD from Ally before?
• What interest rate are you currently earning on your CD’s?
• What do you think of this CD?