Bump-Up CD’s offer relief to many consumers

The rates of CD’s are getting lower and lower with the average APY of 0.532% on a 12-month CD.  According to RateWatch now people will start rethinking their decision to invest in a CD at all.  It is a well known fact that the interest rate has always been a risk while investing in a CD; however, there are indications that the interest rates might soon see a rise.  Hence the worry now will be if the interest rates will get locked in with the low rates.  So, some banks already offer ‘bump-up’ CD’s which insures the investor against a possibility of getting stuck with low interest rates and watching helplessly as the rates begin to rise.

There are options of investing in no-penalty CD’s where one has the freedom to exit from the contract without having to pay a price.  However, for someone who doesn’t want to take the money out and starting all over again, this can be quite tiresome.  This is where the bump-up CD comes handy as it offers an opportunity to get better rates even during the midterm.  This does not necessarily mean that the rise would be simultaneous with a rise in interest rates but these bump-up CD’s will hike up the rates only once to the current rate which matches a similar product from the bank.

For instance, the San Diego County Credit Union has on offer a 23-month ‘bump-up’ CD with a 1.35% APY that can be bumped once to the new rate from the IRA CD or the non-promotional CD through the credit union.

Some banks even offer two bumps for those who wish to have more flexibility.  The First National Bank of West Union offers a 30-month CD which is being marketed as ‘two times repriceable.’

One must however know the calculations that these CD’s are based on and it would be wise not to burn the chances too soon with bumps as one may end up losing out on even better rates later on.  However, if the bumps are burnt too late then the money will not have sufficient time to earn higher interest rates.  Here the banks look at those indecisive clients or those who do not pay attention to use their bumps wisely.

 The ‘step-up’ CD’s also offer a bump in case of increase in interest rates. This is an automatic process and this is taken care of by the issuers as per the CD contract.