Is a “raise your rate” CD a good choice?

Since CD savers generally focus on maximizing their rate of return, special certificates with a name like “Raise Your Rate” are going to grab some attention. But as with all things surrounding CD selection, you’ll be well served by shopping around and then ensuring you understand any CD’s terms before opening it.

A “raise your rate” CD, sometimes called a “bump-up CD”, offers savers a special option to increase their interest rate during the maturity period. Usually you’ll be afforded one rate bump, although some longer CDs allow for two increases.

The bank will also spell out the rules for what new rate you can capture. Generally, you’ll be allowed to take advantage of the bank’s current rate on that same CD term.

It sounds ideal, at least in periods when interest rates are on the rise. But there are still good reasons you may prefer a standard CD.

First and foremost is the cardinal rule of always shopping around when choosing a CD. Rates across banks and credit unions vary widely, especially as online access to institutions outside your community grows. So even though you can boost the rate later, your rate today still needs to be competitive compared to other CDs.

Second, beware that you can only capture a new, better rate from the same exact term as your current CD. If your original CD is an odd term, or the bank tends to release its best rates on promotional odd-term certificates, you may never have a chance to capitalize on a rate increase.

If you’ve done your research and a particular “raise your rate” CD still seems like a good buy, it certainly offers a nice perk during these days of rising interest rates. Just don’t go in without that all-important step of shopping around.