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Bump-Up Certificate of Deposit (Bump-Up CD)

A bump-up certificate of deposit (bump-up CD) is a savings certificate that entitles the bearer to take advantage of rising dividend rates with a one-time option to “bump up” the dividend rate paid. The bump-up CD yields a lower rate than that of a similar CD with no bump-up option. Bump-up CDs are also called step-up CDs.

Certificates of deposit (CD) can be a useful tool for building your savings plan. It’s possible to find CDs that offer competitive rates, allowing you to grow your savings faster than you might with a traditional savings or money market account.

One thing to keep in mind is that CDs aren’t all the same. Bump-up CDs are a specific type of savings option that could help you increase the annual percentage yield you earn over time. This type of CD can be useful in a changing interest/dividend rate environment.

Here’s a closer look at how bump-up CDs work and what to know about using them to save money.

What Is a Bump-Up Certificate of Deposit (CD)?
How a Bump Up Certificate of Deposit (CD) Works

A bump-up CD can be opened at your financial institution. When you deposit money into this kind of CD, they will assign you an initial APY. As the CD’s maturity term progresses, you can ask your financial institution to increase your APY if rates rise.

For example, say you open a two-year CD with an APY of 1.25%. Halfway through the CD’s term, interest rates rise and your financial institution is now paying 1.60% APY on the same type of CD. You could ask your financial institution to give you the higher rate for the remainder of your CD term.

What’s important to note is that bump-up CDs typically only allow one increase per term. But some financial institution make an exception for longer CD terms. With Launch Credit Union for instance, you can choose a term of 26 or 36 months and have the comfort of knowing that if rates increase over the duration of your term, you have the option of a one-time adjustment.

Terms can vary by financial institution, but it’s typical to find bump-up CDs with terms ranging from two to four years. How much of a bump you can receive depends on how much the APY increases on your financial institution’s CDs rate in the future. It’s also possible the your financial institution may cap you at a certain APY limit when requesting a bump.

As you research bump-up CDs, consider the following:

  • Maturity term
  • Bump-up frequency
  • Initial APY
  • Minimum deposit to open
  • Early withdrawal rules and fees

Once your bump-up CD account is open, keep a close eye on what’s happening with interest rates. If you see rates begin to trend upward, you might want to think about bumping your APY. Just consider what the rate forecast looks like for the rest of your CD term. And remember, you’ll have to reach out to your financial institution and ask for the APY increase if you want it. 

How to Open a Bump-Up Certificate of Deposit (CD)

If you have any questions, do not hesitate to reach out to a Launch CU team member. We’re here to help in any way we can. Our goal is to help you go beyond to reach your financial and life goals.

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