Deal or No Deal: Bump-Up Certificates of Deposit

As short-term interest rates climb, albeit at a snail’s pace, a certificate of deposit that allows you to increase the rate during its term may look appealing. With such a bump-­up CD, you may lift the rate one or more times (depending on the issuer’s rules) to a higher rate offered by the bank.

But if you’d rather not tie up your money for more than a couple of years, don’t take the bait. “You won’t see rates increase far enough, fast enough to come out ahead” with bump-up CDs that mature in less than two years, says Greg McBride, chief financial analyst for Bankrate.com. However, some longer-term bump-up CDs have competitive starting yields and are worth a look. For example, America First Credit Union (open to residents of some counties in Utah and Nevada and to those who work for qualifying employers) recently offered 2.3% on a five-year CD with a one-time bump. That compares well with 2.42% on a high-yielding five-year traditional CD from Melrose Credit Union, in Briarwood, N.Y. (available to customers nationwide).

Still, it’s wise to keep a portion of your savings in more-accessible accounts. You can search for short-term CDs and savings accounts at DepositAccounts.com and Bankrate.com. The SFGI Direct savings account, for one, has no monthly fee, a minimum balance of $1 to earn interest and a recent yield of 1.06%.

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