Ally Financial's Revamped Business Should Scare Its Established Competitors

Ally Financial recently went public in its IPO last month, years after being bailed out by the U.S. government in the midst of the financial crisis. Ally was formerly a unit of General Motors, functioning mainly as an automobile lender. Today, it is a stand-alone company and offers checking, savings, and money market accounts in addition to auto loans. The bank offers some of the best rates in the business and could become a formidable contender to big banks such as Bank of America and JPMorgan Chase .

Ally's advantages
Ally is able to offer significant premiums over its competitors because they are an Internet focused bank with no brick-and-mortar locations. Its customers do their banking online through its website, mobile app, and through automatic teller machines (ATMs) nationwide. Ally reimburses its account holders when they incur fees using ATMs at other banks and at other locations. Like some other banks, Ally offers its account holders the ability to deposit checks and money orders by scanning or taking pictures of them, then uploading them on the website or mobile app.

Ally's rates on its financial products is where it really stands out though.

Rates can vary a little state to state, but New York's can be used as a good example. Ally offers a 0.95% annual percentage rate on its twelve month certificate of deposit. In startling contrast, Bank of America's customers can only get a 0.06% rate, while JPMorgan Chase's get an even smaller yield of 0.02%. Ally customers get about 1% on their money while Bank of America and Chase customers earn virtually nothing on their certificates of deposit. The same holds for savings accounts between the three banks. Ally's savings rate is 0.87%, Bank of America's is 0.01%, and Chase's is 0.01%.

So, once again, Ally offers its banking customers a much better proposition for their savings.

Ally's interest-bearing checking accounts also hold a wide advantage over Bank of America's and Chase's in terms of interest rates. Ally offers its account holders 0.6% on balances over $15,000 and 0.1% for balances under $15,000. Bank of America offers rates between 0.01% to 0.03%, depending on an account holder's balance, and Chase offers a 0.01% rate. In addition, Ally has no minimum balances for its accounts like its competitors.

Source: Reuters

Other banks could see account holders flock to online banks like Ally that offer significantly higher interest rates. Moreover, online banking is more attractive to younger, more tech-savvy people.

Bank of America and JPMorgan Chase will have to find ways to decrease their fixed costs in order to compete with Ally and other banks that offer mobility and higher rates. In this low interest rate environment, there is major difference between earning nothing on your money and earning one percent.

Ally is the future of banking
Ally is in a unique position to capitalize on the trend of customers shifting their banking online towards websites and mobile applications. On top of that, the bank offers better rates than Bank of America, J.P. Morgan Chase, and its other competitors. More traditional banks will have to further automate their processes to decrease their costs and to compete with banks like Ally that have lower fixed costs.

Ally is a bank for the future and should see appreciation in its business -- as well as its stock.

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