A rate bump CD is a type of certificate of deposit account that allows you to request a one-time interest rate increase during your CD term. Rate bump CDs are also sometimes referred to as a bump-up CD. But no matter what you call it – this type of CD gives you an opportunity to earn more if interest rates rise. Let’s take a closer look at how they work.
CDs can provide predictable returns on your savings given that they typically come with a fixed rate. That means at the end of the CD term, you get back your principal (your initial deposit) along with any interest accrued.
With a rate bump CD, however, you have the option to request a one-time rate increase for your CD during its term. Many rate bump 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 rate bump 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.
Be aware that there might be rules around how much you can increase your rate at a time. Also, as with most CDs, the term lengths and minimum deposit requirements for rate bump CDs can vary from bank to bank. Before you commit to an account, check with your financial institution – and do some comparison shopping – to understand your options.
Rate bump CD example
Let’s say you’re considering a rate bump CD for a near-term savings goal. Maybe it’s for a dream vacation, a new car, or a home renovation.
You can:
The answer will depend on a few factors like:
You’ll also want to consider the potential benefits as well as drawbacks.
At the end of the day, no matter which CD option you decide to go with, keep these tips in mind:
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website 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, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.
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