Recent developments in the no-penalty CD space

Marcus: By Goldman Sachs logo
Marcus: By Goldman Sachs

 

The New Entrant:  Marcus

Near the end of October, Marcus: By Goldman Sachs debuted their no-penalty CD products with three durations:

  • 7-month CD yielding 2.05%
  • 11-month CD yielding 2.10%
  • 13-month CD yielding 2.15%

These work much like Ally’s no-penalty CD product in that one can withdraw their entire balance without penalty 6 days after the account has been funded. For CIT’s no-penalty product this waiting period is 7 days.

While this was a very respectable foray into the no-penalty space, handily besting CIT’s 2.05% rate on its 11-month, no-penalty CD, Ally still had the slight upper hand with its 2.25% APY for deposits of $25K+ into its albeit-somewhat-shorter-duration, 11-month, no-penalty CD.

It’s worth noting that, unless there’s something I’ve overlooked, Marcus’ choice to offer increasing yields for longer-duration, no-penalty CDs makes little sense. This is because, in contrast to a typical CD with early withdrawal penalties, the duration on a no-penalty CD works in favor of the depositor by guaranteeing the rate for a longer period of time, during which the depositor is always free to withdraw their balance without penalty. This makes the 13-month CD with a higher rate the obvious choice among the Marcus no-penalty CD offerings.

A Challange and A Response

Later, on December 11th, the rate for the Marcus 13-month, no-penalty CD was raised to 2.25%, bringing it to parity with the top tier of Ally’s 11-month, no-penalty CD (requiring a $25K+ deposit). Ally Bank responded on December 19th by raising the rates on the two top tiers of their 11-month, no-penalty CD to 2.30% for a $25K+ deposit and 2.15% for a $5K+ deposit.

The Laggard

During this time, the other major player in the no-penalty CD space, CIT Bank, did nothing to improve the competitiveness of their 11-month, no-penalty CD, which remained stagnant with a 2.05% APY. It seems CIT’s focus lately has been on their newer Savings Builder product, which earns 2.25% on balances of $25K+ and also on lesser balances as long as a monthly deposit is made. While at first blush it may seem odd that CIT is offering a higher rate on an even-more-liquid savings account than on their no-penalty CD, it does make some sense because the rate on the Savings Builder account could drop at any time. It’s also consistent with CIT’s past pattern of creating new products with more competitive rates while leaving the rates on their older products stagnant, thereby making money off customers’ reluctance to incur the hassle of opening a new CIT account to earn the new, higher rate on their existing CIT deposits.

Looking to the Future

Looking forward, I’m curious to see if rational customer choices eventually prompt Marcus to either eliminate the 7-month and 11-month CD durations or make their rate higher than the rate on the 13-month, no-penalty CD (not in response to a yield curve inversion between these durations in the broader market).

I’m also very curious to see how CIT responds to these recent developments as they have a history of playing leapfrog with Ally Bank. In the recent past there has really only been one other serious competitor in the no-penalty CD space — AgFed Credit Union — but they tend to flicker in and out of the scene with occasional strong-but-short-lived offers (i.e. available for about a week) like their 30-month, no-penalty CD. It’s really great to see the entrance of Marcus as a consistent 3rd competitor putting additional pressure on the previous CIT-and-Ally duopoly.

 

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