Get the Marcus mobile banking app

Easy mobile access

What Is a Bump-Up CD?

Share this article

In the world of savings products, CDs (certificates of deposit) have been a popular place to park money and earn some interest. In fact, CDs usually boast higher interest rates than savings accounts.

In addition to a potentially high interest rate, CDs are often considered pretty safe (thanks to being federally insured) and can have more predictable returns, since your rate is typically locked in when you open one. 

However, maybe having your rate “locked in” isn’t what you’re looking for. Perhaps you like a little flexibility in your rate of return (especially if interest rates go up). In that case, you might consider a bump-up CD.

Bump-up CDs can go by a couple different names, like “raise-your-rate CDs ” or “rate bump CDs.”  No matter what you call it, this type of CD allows you to take advantage of rising interest rates (in the case that interest rates do rise) because you have the option to increase the interest rate during the CD’s term. 

How do bump-up CDs work?

The concept of a bump-up CD can sound a little unusual. As we mentioned earlier, most CDs have a fixed rate for the life of the CD term.

But with a bump-up CD, you get the option to increase your rate of return during the CD’s term.

As with most CDs, the term lengths and minimum deposit amounts for bump-up CDs can vary from one financial institution to the next.

Many bump-up CDs will only let you raise the rate one time during the life of the CD. However, some accounts might allow you to hike your rate more than once. Those bump-up CDs typically have longer terms, so it’s worth weighing the pros and cons of your money being tied up for longer versus scoring multiple rate increases.

Now (unsurprisingly) there might be rules around how much you can increase your rate at a time. Before you commit to an account, check with your financial institution – and do some comparison shopping – to see what’s available.

Bump-up CD example 

Let’s say you open a bump-up CD to help fund a savings goal you have in the next two years. Maybe it’s for a dream vacation, a new car or a home renovation.

Your bump-up CD offers an initial 1% APY. If you funded your CD with $5,000, at the end of the first year that 1% APY could earn $50 from interest.

Now let’s say that over the course of that year interest rates go up, and you want to use your one-time rate increase option to “bump up” your APY from 1% to 1.5%. The difference between that 1% and 1.5% on $5,000 is the difference between $50 and $75.

Is a bump-up CD right for you?

The answer to that question will depend on a few things:

And those are the same factors you’d consider for any CD or savings vehicle.

Another important factor to consider with a bump-up CD: Are interest rates expected to go up in the future? If so, a bump-up CD might be a good option.

If not, you might want to go for a more traditional savings product, or even a No-Penalty CD that would allow you to take your money out early without paying an early-withdrawal fee. (Of course, it can be tough to know for sure if rates are going to rise, even if you stay on top of financial news and markets.)

At the end of the day, if getting to nudge up the rate on your CD sounds appealing, a bump-up CD could make sense in your savings arsenal.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.