CDs (certificates of deposit) can be a useful, low-risk part of a savings plan, usually offering guaranteed returns and higher interest rates than traditional savings and money market accounts. However, there are certain times when “locking in” a fixed rate may not be the best option (e.g. when interest rates are expected to go up).

In that case, you may want to consider a “jump-up” CD.

How does a jump-up CD work?

With a traditional CD, you make a one-time deposit, which stays with your bank for a specific term — ranging from three months to five years. In exchange for leaving your money in the account for the term, the bank pays you a fixed interest rate on your deposit.

With most CDs, your interest rate is locked in for the full term, offering a consistent, predictable return. But with a jump-up CD — sometimes called a “raise-your-rate” or “bump-up” CD — you have the option to increase the interest rate without having to wait for your CD to mature.

For example, let’s say you open a 36-month jump-up CD at 1.00% APY. Six months later, interest rates go up to 1.50%. You now have the option to “jump-up” to the current higher rate. (Some jump-up CDs even allow you to increase your rate more than once during the term.)

Is a jump-up CD right for me?

Of course, there are a few things you need to consider before opening a jump-up CD account:

First, which term makes the most sense for your savings goals?
If you withdraw your funds early, you’ll incur an early withdrawal penalty, which may reduce or eliminate any interest earnings. Make sure you can leave the money in the account for the full term.

Just as important, do you expect interest rates to rise during the term of the CD?
If not, you may be better off with a more traditional CD with a fixed rate for the duration. If, however, interest rates are likely to increase, a jump-up CD can accelerate your investment and help you more quickly achieve your savings goals.

To learn more about jump-up CDs, and if they’re a good fit for your savings plan, stop by your local Kendall Bank branch or call us at 913.839.3700.