"Step Up" Cds

cdqueen
  |     |   52 posts since 2016

Has anyone from DA forum any experience/insight/anecdote concerning the CD feature termed Step Up? How do they work (if/when they work)?? Has anyone ever had a success outcome using one of these? Anyone ever had a neutral experience (where the feature never became relevant due to non-rising rate levels)? My impression is that they are a fairly useless feature in both rising and falling rate scenarios as in falling rate climates they never actualize. In rising rate environments how much/many more additional basis points would trigger your CD to be advantaged by this occurrence? Perhaps I misunderstand how they are intended to function (ever to the benefit of CD holder/investor) as they seem more like an artificial mechanism appearing to give advantage to holder but with very low to no odds that they could actually materialize (somewhat like lottery tickets). Would love to learn/hear more about this feature from knowledgeable others. Thank you in advance for any contributions.



Answers
pgroove_fan
  |     |   125 posts since 2019
I had both 24 and 48 month "Raise your Rate" options from Ally when I built my first CD Ladder in early 2018. Now that I have more experience, I see that these particular offerings from Ally almost always carry an interest rate of .25 to .30% below fixed variety CDs elsewhere. Back then I only knew about Bankrate and Banktruth, which are full of figures, but lacking in discussion/knowledge sharing.

Almost immediately after I set my ladder up, interest rates started to climb rapidly. I waited a bit, learned a LOT more about CDs and likely rate fluctuations once I found out about Deposit Accounts, and eventually bumped up the 24 month cert and broke the 48 month. Both rates had increased by .35%, which made the 24 worth keeping to avoid EWP and the 48 worth breaking to get a whole 1% more at a credit union I had joined along the way.

Both operations were super smooth. Ally absolutely RULES when it comes to interface and self-maintenance of one's accounts.

But like in the article pointed out by alan1, the FI usually has the advantage by controlling the rate at will, knowing full well that much of an increase will generate a lot of "bump ups."
alan1
  |     |   369 posts since 2015
This website featured a 2016 article by Charles Reichlin, "Personal CD Investing: Step-Up and Step-Rate CDs". I think the section on "step-up" CDs is well worth reading. (I have not re-read the section on "step-rate" CDs.)
https://www.depositaccounts.com/blog/personal-cd-investing-stepup-steprate-cds.html

depositaccounts.com has also published other pieces on "step-up" CDs.
cdqueen
  |     |   52 posts since 2016
Thank you!


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