Rising Rate CDs protect investors when rates go up by allowing depositors in increase the interest rate. Also called bump up CDs, here are current offers along with one good alternative CD option.
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.
When I first published this article, there were any number of rising rate CDs to choose from. As I’ve continued to update the article over the years, however, the number of options have faded. Many banks that once offered bump up certificates of deposit no longer do.
The good news is that there is at least one excellent option still available. There is also a great alternative to rising rate CDs.
The Best Rising Rate CD
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. It also offers a 4-year bump up CD that allows you to change the rate twice. These CDs are ideal for those who think rates may be going up, and doesn’t want to be stuck with a lower rate.
You can find the second type of raise your rate CD from Dollar Bank. This bank offers a 1-year CD where rates adjust upward every three months. Currently, the rate starts at 0.70% APY the first quarter, and finishes at 1.30% APY. If you do the math, this averages out to an APY for the year of 1.05%. These rate can change daily, so check with Dollar Bank for current rates.
The downside to Dollar Bank’s offer is that the rate is so low, even by today’s standards. Many online banks offer rates as high as 1.55% APY on a savings account. Given that, why would you lock your money away for a full year only to earn less?
Raise Your Rate CD Alternative
This a great alternative to a bump up CD. They are called no penalty CDs. Ally offers one with an 11 month term.
With these CDs, you can take your money out without penalty (about a week after opening the account). If rates go up, you simply withdraw your money and open a new CD. I’ve used Ally’s no penalty CD for our emergency fund. You can get a list of no penalty CDs here.