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- If you open a step-up CD you'll lock in a deposit for a term, but the interest rate may increase.
- Step-up CDs are only available at some banks and credit unions, and often through limited terms.
- Rates on step-up CDs may start lower than traditional CDs but offer the potential to earn more over the entire term.
If you're exploring different types of savings account options, you might come across step-up CDs. Available at select financial institutions, step-up CDs offer a unique twist on a traditional CD by allowing you to benefit from an earnings boost.
What is a step-up CD?
A step-up CD is a type of certificate of deposit (CD) with a variable interest rate.
A financial institution increases the interest rate of a step-up CD at least once before the end of its term. For example, you could see a small interest rate increase every few months or one rate increase halfway through the term.
A bank or credit union will usually specify the exact date when it will apply a rate increase, though some institutions let the investor choose the timing.
Step-up vs. traditional CDs
Traditional CDs have a fixed interest rate that lasts for the entire term. Your interest payments remain the same until the CD matures. With a step-up CD, your rate will increase at least once during your term, the timing and amount of which is pre-determined by your bank or credit union.
Blended APY
Step-up CDs have a blended, or composite, APY. This is the rate you would earn over the entire term length of the CD. It's typically calculated by taking the weighted average of the rate you begin with and each successive rate increase.
Rates on step-up CDs may start lower than traditional CDs, but in some cases offer the potential to earn more over the entire term.
Step-up CDs vs. Bump-up CDs
A bump-up CD is another type of certificate of deposit with a variable interest rate. While these accounts are both a bit more flexible than a traditional CD, the way the accounts apply rate increases often differ.
A step-up CD typically offers a guaranteed rate increase at a specific date, which is outlined in the account opening agreement.
Meanwhile, 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 CD rates before the end of your term. In this case, rate changes will depend on whether the Federal Reserve changes rates, and CDs are impacted as a result.
Why choose a step-up CD?
An expectation of rising rates can be a good reason to open a step-up CD. Rather than waiting until rates go up to invest your money in a CD, you can start growing your money now and boost your earnings when the scheduled rate increase hits.
To ensure you're actually earning more than you would in a traditional CD, however, you'll want to pay close attention to the blended APY of a step-up CD.
Considerations before investing in a step-up CD
Step-up CDs have similar downsides as traditional CDs, including limited access to your money. Accessing your funds before maturity triggers an early withdrawal penalty, which typically ranges from 30 to 120 days of interest, depending on your term length.
If you aren't sure whether you can part with your money for a specified time, a high-yield savings account may be a better option. You'll be subject to fluctuating interest rates, but you can access your money at any time without a penalty.
Finding the best step-up CD rates
The following national banks and credit unions offer step-up CDs. You can also read our bank reviews to learn more about each financial institution.
- U.S. Bank: US Bank has a 28-month step-up CD that increases your rate every seven months with a blended APY of 0.35%.
- TD Bank: TD Bank offers 3-year and 5-year step-up CDs that increase rates annually for a blended APY of 0.10% and 0.15%, respectively. Investors have the option to make a full or partial penalty-free withdrawal once per year at the anniversary of account opening.
- VyStar Credit Union: Vystar Credit Union has an 18-month step-up CD. This CD is a bit different from other types of step-up CDs because during the 18-month term, you can apply a rate increase at any time. You can also add any amount over $2,000.
- Wings Financial Credit Union: Wings Financial Credit Union has a 5-year step-up CD. The interest rate increases once over the 5-year term. Similar to VyStar Credit Union, the rate change can be applied at any time.
To find the best step-up CD for your needs, compare the following CD features:
- Minimum opening deposit: The minimum amount needed to open a step-up CD will usually be between $1,000 and $2,500. By comparison, a traditional savings account will typically require a lower initial deposit of $100 or less.
- Early withdrawal penalties: If you withdraw money before the end of a CD term, you'll typically have to pay a penalty. The CD penalty is usually equal to a month or more of the interest earned.
- Interest rate: Step-up CDs have a blended interest rate, which is a combination of your initial rate and the scheduled rate increase.
- Frequency and timing of rate increases: Some institutions determine when rate increases are applied, while others allow the investor to choose.
Is a step-up CD right for you?
Step-up CDs are ideal for investors with long-term goals who are considering CDs with extended term lengths, such as a year or longer. A step-up CD offers predictable growth while keeping your money secure.
For investors who are looking for the highest earning potential on short-term savings, a step-up CD is not the best option. Step-up CDs may offer lower initial interest rates than traditional CDs to compensate for a boost later, leading to a lower overall APY. To find competitive rates on traditional since, review the best CD rates.
Step-up CD FAQs
Step-up CDs are FDIC-insured up to $250,000 per depositor, per institution. They are considered a cash-equivalent investment, since the principal investment is guaranteed to be returned to the investor. However, they are still subject to inflation risk.
Step-up CDs have pre-determined rate increases, which is beneficial in a flat or decreasing-rate environment.
Consider the term length, starting interest rate and blended APY, early withdrawal penalty, minimum deposit, and the number and frequency of rate increases.
Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards.
Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.
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