Definition, and How to Determine If Its Right for You

  • Step-up CDs are only available at some banks and credit unions, and often through limited terms.
  • If you open a step-up CD you’ll lock in a deposit for a term, but the interest rate may increase.
  • While banks are increasing CD rates right now, you might want to consider other options first.

If you’re exploring different savings account options, you might come across step-up CDs. Available at select financial institutions, step-up CDs offer a unique twist to the traditional CD.

What is a step-up CD?

A step-up CD is a type of certificate of deposit (CD) where a financial institution will increase the interest rate at least once before the end of its term.

Here are some of the most common characteristics to note among most step-up CDs:

  • Minimum opening deposit: The minimum amount needed to open a step-up CD will usually be between $1,000 and $2,500. Bear in mind that for comparison a traditional savings account will typically require a lower initial deposit of $100 or less.
  • Liquidity: Once you deposit money into a CD, the money will need to be kept in the account for the entire term. So you usually won’t be able to deposit money until the term hits maturity.
  • Availability and terms: Step-up CDs aren’t commonly available at financial institutions. Most financial institutions that offer a Step-Up CD also offer limited-term options.
  • Early withdrawal penalties: If you withdraw money before the end of a CD, you’ll have to pay a penalty. The CD penalty is usually some of the interest earned.
  • Interest rate: Step-up CDs have a blended interest rate. This means that the interest rate will go up after a set time.

Step-up CD vs. Bump-up CD

A bump-up CD is another type of certificate of deposit where the interest rate can increase over time. While these accounts are similar, they may not necessarily be the same.

A step-up CD may sometimes offer a guaranteed increase in its rate at a specific date — banks will inform you about rate changes before you even open an account.

In comparison, a bump-up CD — also known as a raise-your-rate CD — will only allow you to request a rate increase if the financial institution raises its rates on its CDs before the end of your term.

Is it the right time to consider opening a step-up CD?

While CD rates have slowly increased over the last few monthsyou’ll want to pay attention to more than new rates before making your decision.

Brittany Davis, AFC, associate financial planner at Brunch and Budget, says minimum opening deposits and


escalation

could play a significant factor in determining whether any type of CD is the best option for you right now.

“Are you OK with parting with your money? Because as I’ve looked at some of the rates, sometimes it’s not worth the money for the interest that’s being paid. You could almost get a high yield savings account and still have easier access to your money,” says Davis.

Particularly with step-up CDs, Davis suggests considering alternatives like savings bonds first.

“It depends on how long you plan to keep your money held away and what the time period is for that step up in interest rate. Is it worth it? Could you be investing in something else? Can it compare to the series I bonds? ” explains Davis.

Banks and credit unions with step-up CDs

The following national banks and


credit unions

all have step-up CDs. You can also read our bank reviews to learn more about each financial institution.

  • US Bank: US Bank has a 28-month step-up CD that increases every seven months.
  • TD Bank: TD Bank offers 3-year and 5-year step-up CDs. Interest rates go up once a year.
  • VyStar Credit Union: Vystar Credit Union has an 18-month step-up CD. You’ll be able to raise your rate once during the term.
  • Wings Financial Credit Union: Wings Financial Credit Union has a 5-year step-up CD. The interest rates increase once over the 5-year term.