I see on Ally Financial's website that a 3-month certificate of deposit (CD) has an annual percentage yield (APY) of 0.75% whereas the saving account has an APY of 1.60%. This surprises me because I thought CDs offer less liquidity than saving accounts for the same level of risk, and subsequently would have guessed that the APY of any CDs at a given bank would always be higher than the APY of savings accounts at the same bank.

Why does a short-term certificate of deposit (CD) have a significantly smaller annual percentage yield (APY) than a savings account in some banks?

https://www.ally.com/bank/online-savings-account/ (mirror):

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https://www.ally.com/bank/view-rates/?setPanel=cds-panel (mirror): enter image description hereenter image description hereenter image description hereenter image description here

  • @RonJohn Thanks, I agree that my question is a duplicate of yours. I'm also surprised by the most upvoted answer and agree with your comment "Some serious QE would have to occur for savings rates to drop that low so quickly.", so I am not convinced that we have an answer. But perhaps it is. – Franck Dernoncourt Jan 18 at 19:12

The key item is that on the page for savings accounts:

Rate is variable and may change after the account is opened

That savings account doesn't have a guaranteed rate. It can change tomorrow, and the day after that...

  • Thanks, good catch! Though 1.60% is still quite far away from 0.75%, especially for a three-month horizon, so I would have guessed that the difference in APY was smaller. – Franck Dernoncourt Jan 18 at 19:06
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    But to drop from 1.6% to 0.75% in the next month and a half is... unlikely. Really unlikely. – RonJohn Jan 18 at 19:07
  • @RonJohn, unlikely, but if there were a stock market crash and the Fed responded by dropping rates through the floor...Or maybe the bank would really just rather you put your money in the variable rate account or bought a longer term CD, so they set the rate on the short term CD where it would discourage most customers from taking it. – The Photon Jan 18 at 19:11
  • @ThePhoton "Or maybe the bank would really just rather you put your money in ..." then stop offering such products. – RonJohn Jan 18 at 19:13
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    @RonJohn, " then stop offering such products." Or only offer them at a rate that makes them profitable enough to be worth your trouble. – The Photon Jan 18 at 19:23

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