Give the Brush-Off to Bump-Up CDs
There's a catch to CDs that let you take advantage of rising rates.
With certificates of deposit still paying minuscule yields, a CD that lets you take advantage of rising rates before it matures seems like a no-brainer. But, as always, there may be a catch. Most banks that offer so-called bump-up CDs restrict them to one or two longer maturities. Plus, many banks that sell these CDs restrict them to walk-in customers -- Internet savers need not apply.
Some banks make you jump through hoops to request the higher rate. At Dollar Bank, which has branches near Cleveland and Pittsburgh, you may bump up your rate to that of a higher-rate CD only if the maturity of the higher-rate CD exactly matches the length of time that remains on your CD. By contrast, Ally Bank, an online bank, lets you bump up the rate on its two-year Raise Your Rate CD at any time; the CD currently earns 1.5%, one of the better rates for that maturity.
But the biggest problem with bump-up CDs, says Chris Chantalat, of MoneyRates.com, is that many earn less than ordinary CDs with comparable maturities. (For example, a 15-month Dollar Bank bump-up CD yields 0.3%.) So when you purchase a bump-up CD, you are gambling that rates will rise enough to exceed the spread before the CD's term ends. No doubt rates will rise eventually, but there is no evidence that it will happen anytime soon. Five-year CDs are yielding, at best, about 2.65%. Your safest option for the time being is to avoid bump-up CDs and invest in the highest-yielding CDs with the shortest maturities to give you maximum flexibility when rates finally start going up.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Take Advantage of National Estate Planning Awareness Week
Is an estate plan something you need? There’s a whole week set aside that says you do.
By Kathryn Pomroy Published
-
Setting Objective Criteria for Employee Bonuses Aligned With Company Goals
When employees win, the company wins.
By Stephen Nalley Published
-
Medicare Basics: 11 Things You Need to Know
Medicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
By Catherine Siskos Last updated
-
Six of the Worst Assets to Inherit
inheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
By David Rodeck Last updated
-
403(b) Contribution Limits for 2024: Good News for Teachers
retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
By Jackie Stewart Last updated
-
SEP IRA Contribution Limits for 2024
SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 a year.
By Jackie Stewart Last updated
-
Roth IRA Contribution Limits for 2024
Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
By Jackie Stewart Last updated
-
SIMPLE IRA Contribution Limits for 2024
simple IRA The SIMPLE IRA contribution limit increased by $500 for 2024 and workers at small businesses can contribute up to $16,000 or $19,500 if 50 or over.
By Jackie Stewart Last updated
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
By Jackie Stewart Published
-
Roth 401(k) Contribution Limits for 2024
retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
By Jackie Stewart Last updated