If you hold a certificate of deposit (or a CD), you might be enjoying the higher-than-average earnings on the rate of return. On the flip side, you may feel twinges of FOMO (or “fear of missing out") as you watch interest rates rise.
With some experts expecting CD rates to increase, locking your funds in a CD might make you feel a bit nervous. You might be worried about potentially missing out on higher rates down the line, and ultimately, on more substantial gains on your savings.
But there's an alternative solution: bump-up CDs – a savings product that allows CD holders to request that their current fixed interest rate be boosted to a new rate. If the idea intrigues you, this article dives into what exactly a bump-up CD is, how a bump-up CD works, the pros and cons, and how it stacks up against other types of savings accounts.
What is a Bump-Up CD?
A bump-up CD is a type of savings certificate that allows a one-time increase on the interest rate affixed to the CD. Should the interest rate of CDs rise, depositors can request to "bump up" their existing certificate of deposit to a new interest rate if the rates offered by the bank for their specific bump-up CD also rise.
For example, with Synchrony Bank's new Bump-Up CD, you can boost your interest rate once during the term if the rate offered for your bump-up CD goes up.
The beauty of this option is that you don't have to pre-emptively make a withdrawal and get dinged with an early withdrawal penalty. Instead, a bump-up CD is more flexible and gives you the power to take advantage of a change in the rate offered for your CD, which means your CD could rake in a greater yield than was previously expected. It's a win-win.
Benefits of Bump-Up CDs
Here are a few of the advantages of bump-up CDs:
• Security. A CD is one of the safest savings vehicles that you can choose — and that extends to bump-up CDs. Unlike the stock market or a variable rate savings account, CDs offer interest rates that are fixed and guaranteed, so you can grow your savings risk-free. Moreover, each CD account is insured by the Federal Deposit Insurance Corporation (FDIC), just like any other deposit account.
• Flexibility. If your bank offers a rise in the rate of your bump-up CD, then you can request an increase to match that rate. This could mean greater earnings than if you chose to open a standard CD, which offers the same interest rate for its entire length.
• Competitive interest rate. Generally, bump-up CDs offer a higher-than-average rate of return compared to putting that money in a standard savings account with a variable interest rate.
• Predictability. Because CDs have fixed and guaranteed interest rates, there's no guessing game about how much you might earn in interest for the term. Also, if the interest rate on your CD decreases after you “bump," you're locked in with the new, higher rate for the rest of your specific CD's term.
• Longer-term CDs might mean multiple bumps in interest rates. While bump-up CDs typically feature a one-time rate increase, sometimes CDs with longer terms offer multiple rate increases or even bigger bumps. So, you could potentially get more boosts and earn more interest.
Disadvantages of Bump-Up CDs
When it comes to bump-up CDs, there are some possible downsides to consider:
• Starting rates may be lower. The interest rate on a bump-up CD might be lower than on traditional CDs with comparable lengths and terms.
• Interest rates are unpredictable. Unless you have psychic abilities, it's impossible to predict with 100% accuracy where interest rates will go in the future. With a bump-up CD, you could benefit from a one-time bump if interest rates climb…but that decision to bump could mean accepting a less competitive rate if the rate environment changes again.
• Locked-in: Like a traditional CD, your money is locked in for a term. If you decide to withdraw the funds early, you'll typically pay a penalty, which is usually several months of interest or more, depending on the length of your CD term.
• Minimum deposit. There might also be a required minimum deposit to open a CD. With Synchrony Bank, there's no minimum.
When to Consider "Bumping Up"
In general, bump-up CDs are beneficial if interest rates rise during your CD's term. But predicting what will happen with interest rates is tricky. The best you can do is stay informed about what's going on in the current rate environment.
For instance, if rates are currently stagnant, your best bet may be to go with a traditional CD that offers a competitive interest rate. But if experts are predicting a rate increase in the next year, a bump-up CD may be a good option. The choice largely hinges on your risk tolerance and what the market is doing.
Another consideration: Each financial institution sets different rules and terms for their bump-up CDs, so do your homework before deciding between the savings products. Here are a few questions to mull over:
• Which specific CDs are bump-up CDs?
• Is it a one-time rate increase or are multiple increases permitted?
• Will your CD auto-renew? If so, is there a grace period when you can transfer your funds out of your existing CD?
• Is there a penalty for pulling money out early? If so, what is the early withdrawal penalty?
Bump Up CDs vs. Traditional CD Accounts
You might already know how a traditional CD works: with this type of savings account, you deposit a sum into the account and agree to leave your money untouched for a fixed term (e.g., anywhere between 3 months to 5 years). Bump-Up CDs and Traditional CD accounts share a lot of the same features: Once the CD matures, the bank gives back your money plus any interest you made on it. They also share some advantages. Let's take a look:
Flexibility
The major difference between a bump-up CD and a traditional CD is that while you're locked into a single interest rate with a traditional CD, you have the option for a one-time increase with a bump-up CD. In turn, if the bank you've opened a CD with offers a bump in the interest rate on that particular CD term, you won't miss out.
However, you'll need to request the increase, so being in the know which market conditions and the economic climate are important.
Term lengths
Depending on the financial institution, different terms might be available for standard CDs and for bump-up CDs. For example, with Synchrony Bank, standard CDs are available in term lengths from 3 months to 60 months. Synchrony's bump-up CD is currently available in a 24-month term length.
Interest earnings
A standard CD might offer a slightly higher initial rate than a bump-up CD. However, with a bump-up CD, you'll have the option for a one-time increase.
Security
Whether they're bump-up or traditional CD accounts, all CDs are considered one of the safest places to put your money. They have a fixed APY (or annual percentage yield – that's how much you might earn from your deposit in a year), which means the rate of return won't fluctuate during the term. So depositing your money in a CD is subject to less volatility than investing it in the stock market or putting your money in a variable rate savings account. Certificates of deposits are also insured by the FDIC, which means that if the bank fails, you'll get your money back up to an applicable amount.
Bump-Up CDs, CD Ladders, and Step-Up CDs: What's the Difference?
When shopping around for CDs, you may have encountered other types and savings strategies. Here's a cheat sheet on the differences and what to consider when choosing between them.
Bump-Up CDs vs Step-Up CDs
Consider a step-up CD and a bump-up CD as relatives with shared traits. Both feature potential to receive an increase in interest rates during the duration of your CD. Should rates increase, the interest on your CD might rise, too. That way, you aren't locked into a single rate for the term length.
But there's a major difference: a step-up CD has an interest rate that can increase at predetermined intervals. These rates are set in advance by the bank. Here's an example schedule of how a step-up CD works:
| Term |
Interest Rate |
| 1st 6-month period |
0.5% |
| 2nd 6-month period |
0.7% |
| 3rd 6-month period |
0.9% |
| 4th 6-month period |
1.2% |
| Blended rate: |
0.825% |
So for a 24-month step-up CD, the first six-month period is set at a 0.5% APY. A 0.7% APY boost follows six months later. The third six-month period is set at 0.9%, and the last and fourth six-month period is set at a 1.2% APY. Overall, the blended rate for the entire length of the CD is 0.825%.
In contrast, the interest rates on a bump-up CD are not fixed, nor are they predetermined. You get to decide when you want to boost your rate. This new rate will be effective until the end of your CD's current term.
The advantage of a step-up CD is that you can determine how much you'll earn before you open the account. But if rising interest rates are on the horizon, then a bump-up CD might be worth considering because you may earn more in interest overall.
Bump-Up CD vs CD Ladders
A common CD-saving strategy is CD laddering. A CD ladder is when you spread out your funds within several CDs with different terms. For instance, you could split $10,000 into five investments, putting $2,000 into CDs with one, two, three, four, and five-year terms.
When the first-year CD reaches maturity after 12 months, you can then re-invest that amount into a five-year term to move it up the ladder. Or you can cash out a maturing CD if you're short on funds.
The benefit of CD laddering is flexibility: your funds aren't locked into a single CD. Because your investment is split up, you can tap into the higher interest rates of longer-term CDs while still accessing your money with the shorter ones.
The trade-off of CD laddering is that you may not earn as much as a bump-up CD, which often offers a higher interest rate.
How to Open a Bump-Up CD
You can open a CD at any bank, credit union, or financial institution that offers bump-up CDs. Each bank has its own process to open a bump-up CD account.
Opening a CD with Synchrony Bank is easy with online banking, and you can open a new account online in a few minutes.
If you're an existing Synchrony Bank customer:
Start by signing into your account and following the steps. Once you set up a CD account online, fund your new CD from either a Synchrony Bank account or a non-Synchrony Bank account.
Transferring money from a non-Synchrony Bank account? This can be done via a paper check or ACH from your external bank account (aka a non-Synchrony Bank account.):
If you're a new Synchrony Bank customer:
It's easy to apply for a Synchrony Bank account online. Your account might be approved within minutes. You'll just need your information, including:
• Your name
• Address
• Social Security number
• Copy of a government-issued ID (i.e., a driver's license or passport)
• Checking account information to set up the initial deposit
• You may also be asked for information about your background, such as your current and past employment, and debt situation.
Once you're all set up, you can make a deposit. Then, watch your funds grow.
Last Word: A Synchrony Bump-Up CD May Be Your Bag
A Synchrony Bump-Up CD can lessen the fears of missing out and being locked in a rate. It gives you the power of choice. If your bank offers a new interest rate, which means that the rate of a specific bump-up CD can rise, you can increase your rate once — and scoop up the benefits of a higher rate.
Taking advantage of a higher rate — and bumping up your CD rate is easy. Hop online to Synchrony Bank's website or mobile app, or reach out to one of our experienced bankers via phone. We'll answer your questions and walk you through the process.
Learn more about how Bump-Up CDs can be your savings vehicle of choice.
Jackie Lam is an L.A.-based money writer whose work has appeared in Salon.com, Refinery29, Business Insider, and BuzzFeed, among others.
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