Bump up certificates of deposit which is a safe option for the wise

Certificates of deposit have for long been considered to be a very good investment option for people who do not have much time to follow their investments. They are safe and well paying at the same time. The only draw back with these investments is that they have to be locked up for a long duration. And during this period you will not have access to your money. But there are some specialized certificates which cater to the needs of people who want to withdraw their money regularly.

Bump up certificates of deposit is one such specialized certificate of deposit. They allow a person to invest in the certificate like any normal certificate of deposit and at the same time they will allow you to take advantage of changing market scenarios. We shall discuss the mechanism of the working of bump up certificates in the following passages.

For example if a bank were to offer a certificate of deposit with a five year tenure, with a bump up option and a normal certificate of deposit with a interest rate higher by a quarter of a point then you must go for the bump up certificate if only the interest rates increase more than a quarter point during that five year period.

The global economic market is never dormant. It is a moving and changing entity which is dependent on a number of factors. At present, the global economic scenario is such that no individual can invest in the stock market with confidence that nothing drastic is going to happen to their investment. The market has gone down and with that the interest rates that the banks offer has also gone down. When the interest rates that are offered by the banks go down, it means that the interest rates of certificates of deposits also go down. If you have a traditional certificate of deposit, it means that your interest rates are not going to be affected during the tenure of the certificate. But if you have a bump up or step up certificate, you can take advantage of rising interest rates and go for a bump up during your tenure.

Now the terms and conditions of bump up or step up certificates differ between each financial institution. Some bump up certificates will allow you to bump up or change your interest rate more than one time during the tenure of your certificate of deposit. Others will only allow you to do this once. And the change that is allowed might also have a limit depending on the certificate you have purchased.

But you need to remember a number of things when you decide to go for a bump up certificate of deposit. The interest rate that is offered to you by the bank will definitely be lesser than the interest rate that you will get with a traditional certificate of deposit. The magnitude of difference will depend on a number of factors including the type of bank, the duration of the tenure and the current market conditions. You will need to read the market conditions with care before you make a decision to go for a bump up certificate. If the market keeps falling during the tenure of your certificate, then you are not going to get anything out of the bump up certificate of deposit. And you will lose out on the extra interest rate that you might have got if you had gone for a traditional certificate of deposit.