Ally Bank: The saver's "friend"

If the folks at Ally Bank were looking to catch some attention, they succeeded. Time will tell if it’s truly warranted.

Ally Bank, if you haven’t heard, is the new name of the old GMAC. That’s right, that GMAC, the former financing unit of General Motors. Ally is not owned directly by the troubled car company. Instead, it’s held by parent bank holding company GMAC Financial Services, of which GM still owns a large piece.

Ally caught my eye with its recent marketing campaign. Suddenly, I saw its ads popping up everywhere; on The Wall Street Journal’s website, during The British Open broadcast a few weeks ago. The TV ads were particularly catchy, with a schmarmy salesperson representing the “typical” bank using fine print and broken promises to hoodwink young kids out of a toy truck and a real pony. Ally, in contrast to other banks, “values integrity as much as deposits,” according to its website.

A good story
Sounds pretty good, especially today when consumer trust in financial institutions is pretty low. But make no mistake; Ally does value deposits pretty highly. It’s looking to grow, and grow fast, by offering very attractive interest rates on its products—among the highest around. Its online savings account, for instance, has a 1.75% rate, better even than traditional market leader, ING Direct (1.40% for its Orange Savings Account).

More competition is a good thing, but it’s also good to question just how real higher rates are, or how long they will continue. One thing Ally doesn’t highlight in ads or currently on its website is that parent GMAC Financial was one of the institutions to receive government bailout money for being undercapitalized. The institution is secure now, but that wasn’t necessarily the case at the end of last year.

And in recent weeks, the American Bankers’ Association cried foul to the Federal Deposit Insurance Company (FDIC) about Ally’s high-growth through high-deposit tactics, which it alluded to as “unsafe and unsound.” Like any bank, Ally loans out depositors’ money and if they depart the bank en masse for higher rates elsewhere, it could conceivably be caught short-handed. An unlikely scenario, but it’s why banks have to have a certain amount of capital on hand in the first place.

The FDIC also required Ally to get written approval to issue debt secured by bank deposits, as well as to keep the regulator informed on just how high above the market average its product rates are. Ally reduced the rates on its savings products from some much higher initial levels it started with in May.

Moral of the story
With savings accounts, like anything, an old rule still applies: If it sounds too good to be true, it often is. Chasing interest rates from one bank to another requires a lot of time and effort for what can often be very little gain. No one’s going to build wealth by getting an extra .25% interest on their emergency cash.

And despite the banking industry’s woes, another old rule also applies: Marketing prevails over common sense. “Valuing integrity” sounds great in a TV commercial. But it’s how actions demonstrate that integrity that really counts.

The true point of living by a budget

In a recent post, Matt at the blog One Million and Beyond describes the fluid budget. I was glad to see it because the "fluid budget" sounds a bit like the one my wife M and I are on.

We've gotten to the cash register at the grocery store and had to take things off the conveyor belt because we exceeded our spending limit for that trip. But at times we've also shifted money from one category because we suddenly decided to spend more in another category. As Matt points out, a "fluid" budget that has some give can work.

Most people think of a budget like a pair of financial handcuffs, very tight and uncomfortable. But the point of a budget is not to determine ahead of time exactly what you are going to spend in every category of your life and then rigidly spend only that amount. A budget is just a tool to help you control your spending so that you are living within--or even better, below--your means.

When your budget is working, it feels good. You know how much you have to spend, you're making conscious decisions about what dollars go where, and most importantly, you're not piling up debt.

Accomplish those things--whether using a rigid or fluid budget--and you'll take a big step toward reaching your financial goals.

More fun at the Carnival of Personal Finance

I saw Matt's post at this week's Carnival, hosted by Christian Personal Finance. Here are couple more of my (and the editor's) picks from the week's selection:

The whole armor of personal finance. At Debt Free Adventure, Matt draws an analogy between the armor of God described in Ephesians 6:10 and the "armor of personal finance." It's a cool and very appropriate parallel (though I prefer the more plain-English version of the verse, instead of ye olde King James version). After all, every financial decision is a spiritual decision.

Buy on the rumor, sell on the news. Dorian from The Personal Financier gives his take on the link between investing and psychology, my favorite aspect of money. One interesting thing he discusses here: How the expectation of getting money, in our own minds, is actually more satisfying than actually getting it. Go figure!