Bank CD Options

Bank CD Options

Bank CDs provide some of the highest rates return among bank savings options.   Bank CDs can offer investor both safety and security with fixed rate of return.  Not all bank CDs are the same and investors not only have choices regarding the CD interest rate or term but also have options with the type of bank CD to invest in.

With a traditional FDIC insured bank CD, the account holder agrees to keep the money deposited with the bank for a term ranging from a few days to several years.  In return for leaving the funds in the bank account, the bank agrees to pay the CD account holder a higher interest rate than may be available from a checking account, savings account or money market account.  If you need to withdraw the money before the CD matures, you will pay a penalty.  When that term ends, you can withdraw your money or roll it into another CD at the current rate.

Other bank CD options that investors can choose to hold instead of the traditional bank CD include: variable rate CDs, bump up CDs, step up CDs, liquid CDs an callable CDs. 

Variable Rate CDs are similar to traditional bank CDs but unlike traditional CD’s that pay a fixed rate of interest, the variable rate CD has an interest rate that is linked to the performance of a participating interest rate index such as a 3 month Treasury bill.  If the index rate goes up, the CD rate does too but if the index rate goes down, the CD interest rate will go down as well.  The entire CD balance earns the adjusted rate tied to the index at the time of the rate changes which is generally monthly.

Bump-up CDs allows the account holder to increase the CD rate to a higher interest rate if market rates go up.  Most banks that offer this type of CD let the account holder bump up the interest rate once during the term of the CD.  The new CD rate will last for the remainder of the original CDs term. 

Step up CDs are often confused with bump up CDs since both CDs may have rate increases that remain fixed.  The difference with the step up CDs is that instead of allowing the account holder the choice to increase the CD rate should rates rise, the step up CD calls for periodic increases in the CD rates over time.

Liquid CDs are also fixed interest rate CDs but these CDs allow the account holder to make withdrawals from the account during specific times without incurring an early withdrawal penalty.  The interest rate on these CDs are usually lower than traditional CDs due to the added liquidity they offer.

Callable CD gives the issuer the options to pay off the CD before it reaches maturity.   A bank that issues this CD with the right to recall it after a set period, returning the initial deposit plus any accrued interest owed to the account holder.  These CD often have longer terms of five years or more and often pay a higher interest rate to make this type of CD more attractive to investors.

Always make sure you understand the key terms and conditions of the bank CD before investing and shop around for the highest CD interest rates regardless of the CD type.