Why I’m leaving Ally Bank

What's up, you guys? It's Graham here. So, first of all, I just want to say I apologize. I am very sorry. I really don't know what to say because I junked it. If you haven't seen my video I posted just a few days ago on the best savings accounts to get, here's what I said: Even though the Fed has now been lowering interest rates, the interest rates paid on savings accounts have not been followed and they have not been lowered.

I have a feeling the reason for this is because they know if they lower the interest rate, you're just gonna go and move your money to another bank, and they don't want to risk that. And, of course, wouldn't you know it? Just 24 hours after I posted that video and I said that, Ally Bank decides to lower their interest rate from 2.2 percent all the way down to 2.1 percent. And then, of course, if I didn't jinx it enough, Marcus by Goldman Sachs also just lowered their interest rate from 2.25 percent all the way down to 2.15 percent.

So now I'm just kind of thinking to myself, maybe I should be talking about how banks are gonna be lowering their interest rates so then banks are gonna be like, “Well good, we see what you're saying in your videos, so we're gonna do the opposite of that.” So now we're gonna raise our base dislike and fear. And if things aren't getting weird enough, in the midst of all of this happening, Wealthfront decides to go on offense and absolutely just destroy the competition by increasing their interest rates from 2.51 percent all the way up to 2.57 percent.

All of this literally one hour after Ally Bank announces that they're lowering their interest rate. This is the type of financial drama I am all about! Like, who needs Logan Paul versus KSI or James Charles versus Tati when you've got Ally Bank and Wealthfront just dueling each other for business?

So let's talk about exactly what happened, why this is going on, and just a few big warnings that everyone should be made aware of any time they open up one of these accounts.

So first, what's going on, and why did this happen? Well, without getting too complicated, banks want you to deposit money with them so that they can turn around and then use that money to lend it to somebody else. The bank will then make a profit on the spread between the loan that they give somebody else and what they pay you back as interest.

So if a bank is loaning out money at 3% and then they're paying you a 2.2 percent interest rate, the bank is making a profit on the 0.8% difference. When it comes to how much a bank can reasonably charge someone for a loan, it's really largely driven by the 5 and 10 year Treasury yield, which is really driven by market expectations of supply and demand.

Like, if we look back, we can see that in January of 2019, the 10-year Treasury was paying a 2.66% interest rate. That leaves the banks with enough margin to go and loan out their money and then pay you a 2.2 percent interest rate, and they still end up making a profit. However, today we can see that the Treasury yield has dropped in anticipation of the Fed potentially lowering interest rates even further, and that means that many of these banks can no longer afford to pay the interest rates that they once were.

And like I said, this is not just isolated to one bank or one company. Even Marcus by Goldman Sachs had just recently announced this morning that they're lowering their interest rate from 2.25 percent down to 2.15 percent. It wouldn't be surprising when other banks just slowly start to follow suit within the next few weeks.

Now, second, it's very important to understand that the yield you get on a high-interest savings account is going to fluctuate over time. None of these rates are set in stone, and a bank can choose to raise or lower these interest rates at any point in time at their sole discretion.

Now, banks won't normally just lower interest rates to try to be cheap or to try to scam you out of any sort of money or anything like that, but banks are a business. And in order to be a business that stays afloat, they do need to make money, and they need to make a profit. If the Fed decides to go and raise interest rates, then chances are you will get paid out more in a savings account.

And if the Fed lowers interest rates or the market anticipates that the Fed will be lowering interest rates, then chances are you will be getting paid less in a savings account. To be honest, I was surprised rates haven't gone down sooner, and I think we're lucky to have had them as high as they have been for so long.

When it comes to this, I mean, this is really the differentiation between getting a savings account and putting your money in a CD. Like, when you go and put your money in a CD, even though it might pay a little bit less than what a savings account is currently offering, you know your money is going to be locked in. No matter what happens, your interest rate is going to stay the same. This is not the case with a savings account, which could wind up paying a little bit less a month or two from now.

So, I think it's pretty safe to say that if rates are trending downwards, we should see savings accounts following this. A third, I think someone needs to finally say this: I don't think it's that big of a deal, and I'm really surprised how upset people are getting over this.

Like, with Ally Bank and Marcus by Goldman Sachs, we're talking about a 0.1 percent interest rate difference. 0.1 percent! That means for every ten thousand dollars you have with them, you're getting paid 83 cents less per month for every ten thousand dollars you have. And wait a second! That's before taxes! After taxes, it really works out to be like 60 cents less per month for every ten thousand dollars you have with them.

Someone's got to say this, so I'll be the one to say it: It's not that big of a deal! Even if you're just making it rain and you're a baller right now and you have two hundred and fifty thousand dollars sitting with Ally Bank, we're talking about a difference of twenty dollars a month before taxes. Twenty dollars a month less on two hundred and fifty thousand dollars, it's not a big deal!

And right now, if you're getting paid above two percent for any savings account, you're still getting paid significantly more than what most banks are offering at like a 0.1 percent just off the bat. So really, the after-tax loss of 60 cents a month on every ten thousand dollars you have is not a big deal, and it's no reason to get upset.

This is not the banks scamming anybody or trying to pull a fast one on this. It's not a big deal! But when it comes to this, I absolutely need to mention the elephant in the room here, and that would be Wealthfront. They took an entirely opposite approach from every other bank out there by increasing their interest rates from 2.51 percent to 2.57 percent at a time where pretty much every other bank was beginning to lower their interest rates.

Now, I just want to make a very important disclosure here that all of this right now is just my opinion. This is not financial advice, and all of this is just my wild imagination and speculation. But I think Wealthfront did this on purpose because they saw weakness in their competitors and determined this was the moment to make a big move to steal some of their market share away from other companies.

You know, I gotta say it worked! Like, when it comes to me, Wealthfront’s original 2.51% interest rate was enough for the difference for me to move some money over from Ally just to give them a shot. I don't want to say exactly how much money I have with them, but let's just say that a 0.31 percent difference in an interest rate added up to something that I would consider to be a decent amount of money.

But when all of a sudden Ally Bank lowers their interest rate and all of a sudden Wealthfront raises theirs, then the difference of now 0.47% starts adding up to a significant amount of money, especially when it's FDIC insured up to a million dollars. At that point, you know, I kind of thought to myself, well, I may as well just go with Wealthfront as long as they continue offering that type of interest.

And don't get me wrong, I'm still gonna be using Ally Bank as a bank for all of their checking accounts, but all of a sudden now this spread between what Ally Bank is offering and what Wealthfront is paying is just too big to ignore. Now, here's what I think though: Wealthfront makes their money from their investment account where they charge a 0.25 percent management fee annually. At its core, that's what they do.

They're not in the business of just paying 2.57 percent on a cash account; that's not what they want to do. They're an investment account; they make their money from their investment fees. And part of me almost thinks that they're doing this to operate at a loss on their cash account just to gain more market share and bring in more money to eventually funnel that into their investment accounts.

Now, of course, I don't have any proof of this; this is all just my speculation and my wild imagination. But if this is the case, then I do think this is very smart of them to do. They're basically doing what Robinhood should have done months ago but didn't do it, and now Wealthfront is doing it just way better.

And like I said, I would just be more likely to use Wealthfront's other services once they already have money with them, and I'm sure other people just feel the same way. The fact that they're raising rates right now to gain notoriety is just a really smart thing to do, and I commend them for doing this and just getting everyone to now talk about them like I am now.

My biggest concern when it comes to all of this is whether or not that 2.57 percent interest rate is going to be sustainable. I have a sneaking feeling that this might be a teaser rate just to gain some market traction, and as soon as they've gained a big enough foothold on the market, they're going to lower their rates back down a bit.

Now, to be honest, even if they do this, I would still be pretty happy as long as they're offering more than what other banks are gonna be offering. Given their excessive fee on some of their investment accounts, I have a feeling that they could afford to keep this going for potentially quite some time.

But like I said, only time will tell. As a no-frills, just pure cash holding account to earn 2.57 percent interest, so far I've been pretty happy with Wealthfront, and so far, no complaints.

So anyway, like I said, that's what I think is going on. For anyone who's upset about a 0.1 percent decline in interest rates, just really understand it's not that big of a deal. The overall loss that you get from this is equated to—it's almost like next to nothing.

And I'm still using Ally Bank because I like them a lot, and I really like their checking accounts. But I'm gonna put my money where the money is, and if the money is now at Wealthfront, that's where I'm going to be putting it because now a 0.47 percent difference in an interest rate starts adding up to a lot of money.

At the end of the day, having a good product and a good service and a good customer experience is worth it, even if you end up making a little bit less. And of course, smash the like button if you haven't done that already!

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