Thursday, July 3, 2014 - 11:52 AM
Institutions will sometimes advertise a CD with special features such as a bump-up or step-up of the rate at a time of the customer's choosing. Unfortunately, there are no guarantees that a customer would be able to request that bump if the institution does not continue to offer that CD term. For example, the potential advantage of a step-up feature on an 11-month CD with an initial low rate is useless if the institution never again offers an 11-month term CD.
If you browse DA’s tables, you will notice an institution currently offering a CD with stepped-up rates at fixed points for CD terms of 36, 48, and 60 months. For example, on a $1K minimum deposit, details of the 36 month CD: (0.5 months 0-12, 1% months 13-24, 1.79 months 25-36).
Good deal or not?
At the end of the 36 months you will have earned total interest of $33.45 ... or you could have deposited the same $1K in a 3-year CD at 1.09%, which is not hard to find. According to DA’s CD rate tables, there are 897 banks and credit unions across the country offering 36-month CDs with rates of at least 1.09%.
At the end of 48 months in the step up CD (0.85% months 0-24, 1.65% months 25-36, 2.63% months 37-48) you will have earned $61.59 … which you would have earned with the same $1K in a 48-month CD at 1.5%. There are 335 other banks and credit unions across the country offering 48-month CDs with rates of at least 1.5%.
At the end of 60 months in the step up CD (1.1% months 0-24, 1.89% months 25-48, 3.16% months 49-60) you will have earned $92.77… which you would have earned with the same $1K in a 60-month CD at 1.83%. There are 279 banks and credit unions across the country offering 60-month CDs with rates of at least 1.83%.
Everyone manages money according to their individual circumstances. If you prefer to deal only with brick and mortar institutions within a certain distance from your home or place of business, you will likely have fewer options available, but it's your money and your choice. Still, whatever you choose to do, it pays to do the math to be sure you are getting a good deal.
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