Is There Such Thing as "Too High" Rates on Deposit Accounts? Ally Enemies Think So
July 07, 2009
Savers looking for the best CD rates have noticed a "new" player on the scene: Ally Bank. In addition to attracting eyeballs with high interest rates on deposit accounts, Ally Bank has become famous for putting out a series of funny, irreverent TV ads portraying other banks as stingy tightwads.
However, Ally Bank is new only in name. In fact, Ally Bank is a spin-off off GMAC, the finance arm of General Motors, which of course is now basically a ward and a dependent of the Federal government.
The Chairman of the American Bankers Association, Edward Yingling, wrote a letter to the FDIC calling for the FDIC to stop Ally Bank from offering such high interest rates on deposit accounts, seeing as the bank's on the dole. The temptation is to dismiss Yingling's argument as yet another cry for government sticking its nose where it doesn't belong--in this case, into the pockets of people with savings accounts and CDs.
A closer examination of the facts, though, presents a more complex picture.
Banks that are considered "undercapitalized" by the FDIC are prevented from offering such high interest rates to depositors. Ally isn't on that list, but perhaps should be. After all, Ally Bank lost $133.5 million dollars in the first quarter of 2009 alone.
FDIC protection up to a limit of $250,000 per depositor per bank makes taking advantage of Ally Bank's high interest rates a low to no risk proposition for individual depositors. The ultimate effect of such tactics on the overall banking system, however, is certainly up for debate.
