Rising Rate CDs Are Like Fine Wine, They Get Better With Age

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A rising rate CD, as the name suggests, is a certificate of deposit in which the interest rate can go up during the term of the CD. There are two types of rising rate CDs. In the first type, if interest rates go up during the term of the loan, you have the option to change to the higher rate. In the second type, the interest rate goes up automatically to a predetermined amount over the course of the CD term. The second type of rising interest rate CD is a bit of a gimmick. The bank could instead just pay out the average rate of the CD over the entire term. But the first type gives CD owners a real opportunity to take advantage of rising rates.

Ally Bank offers the first type of rising rate CD. Called a “Raise Your Rate” CD, Ally offers a 2-year term CD with the option to change the rate once during the term. This CD is ideal for those who think rates may be going up, and doesn’t want to be stuck with a lower rate. The Ally CD interest rate currently is(as of).

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As an example of the second type, First Midwest Bank has launched what it calls a rising rate CD. The certificate of deposit is for a 32-month term, and the interest rate rises automatically every 8 months. The first 8 months earns a respectable 1.41% APY, and the CD earns 2.41% APR in the final eight months. At these rates, the rising rate CD is very competitive with our list of some of the best CD rates available.

According to First Midwest Bank, the CD is “open to individuals from Illinois, Indiana, Iowa, and Wisconsin only. Annual Percentage Yield (APY) is valid as of 6/10/09 and assumes monthly compounding. Minimum balance to open this Certificate of Deposit (CD) and earn stated APY is $5,000 and is available only on money not on deposit with First Midwest within the last 90 days.”

First Midwest is not the first bank to offer a rising rate CD, or its close cousin, the bump up CD. A bump up CD allows the depositor to increase the interest rate on the CD during its term if rates rise. Typically, depositors are limited to one bump up during the term of the CD. And many banks use the terms rising rate and bump up interchangeably, so make sure you read the terms of the CD carefully.

Bank of America currently offers what it calls a rising rate CD, which really acts like a bump up CD. Called the “Opt-Up” CD, it gives depositors the option to increase the interest rate one time after 6 months. Here are the details:

  • 18-month term opened in any amount from $10,000 up to $250,000
  • Get the typically higher rate of a long-term CD
  • FDIC insured to the maximum amount allowed by law
  • Option to increase your rate one time after six months, if interest rates rise during the term of the CD, with no fee or term extension
  • If rates rise, you can increase your rate between your opening rate and the then-current rate offered by Bank of America on a new Opt-Up™ CD

You can get details on the CD by clicking here.

Soverign Bank also offers a rising rate CD, which allows you to increase the rate once during the CD’s term. Dollar Bank offers a rising rate CD similar to First Midwest. With Dollar Bank’s product, the interest rate can increase every 90 days on a 1-year CD.

Published or Updated: June 6, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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