Determining the interest rates on a two year step up certificate of deposit

A certificate of deposit is the best way to get the maximum interest rate out of your money with the least possible risk. But the downside with a certificate of deposit is that it will lock up your money for a long period of time. And if you have to access it during that period, you will have to pay a penalty to the bank or financial institution that sold the certificate to you. 

A step up certificate is one which allows you to increase the interest rate or step it up every few months. But the mechanism involved behind the step up is governed by a lot of other factors. You can follow these basic steps to understand how it is calculated. 

• First get hold of the original paperwork that was handed over to you by the bank. This will show you all the details about how the interest rate will be calculated and how the step up will be done and at what intervals.
• Normally the rate will increase four times in an interval of 24 months. The rate will start at a certain level and then increase every 6 months. Usually the increase will be no more than a quarter or half percent per interval. But the increments and the intervals will be pre-decided.
• It is important to always keep a record of the certificate at hand. You need to have access to your account number, your name, the expiry date, your current balance and your current rate of interest on the certificate.  

The thing about step up certificates is that it involves a lot of financial acumen. The bank fund managers will make a prediction of how much your money might multiply during the tenure. This will depend on a lot of traditional finance prediction tools like chaos theory or other statistical methods. Once a prediction is made, the bank will give you a proposal for the step up mechanism. When you get this proposal, ensure that you make a negotiation with the bank about the rates. You can very easily raise the initial bar so that you can make more out of your investment. Try to get a head start so that you will not have to worry about shuffling your funds later on. And also try to get them to increase the number of intervals and also the increment percentage. 

A certificate of deposit is something that gives you a lot of security and stability. But make sure that you negotiate a step up certificate in the right way. You can go wrong in many ways while doing this. A step up certificate is not a traditional fool proof certificate. In some cases, there are step down certificates too. You will have to use your financial acumen to understand whether the certificate is stepping up or down. It is very important to read the fine print while doing this process. Take your time and reap the maximum benefits from this certificate, it is one of the most rewarding certificates along with a trade up certificate which another nice option.