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Rising Rate CDs: More Flash Than Cash

A growing number of banks are promoting “rising rate” CDs, which allow savers to boost their return if interest rates go up.

They’re playing to fears that anyone who locks in a long-term rate now will suffer when the Federal Reserve finally starts pushing interest rates back up.

Unfortunately, most of ones we’ve looked at aren’t very good deals.

The “Raise Your Rate CD” from Ally Bank is one of the few that seems worthwhile.

Ally Bank 'Raise Your Rate' CD

This 24-month certificate of deposit starts out paying 1.99% APY, which is reasonably close to the 2.25% APY you can earn with the best nationally available 2-year CD.

If Ally raises the rate on its 2-year CDs, you can call the bank and say, “Increase my rate.” Your CD will then earn the new rate until the certificate of deposit matures.

When do you make that call? After the rate goes up to 2.09% or maybe 2.15%?

If you raise your rate too early, you miss out on possible higher returns. If you raise it too late, you lose earlier increases.

But hey, you’re earning a very competitive rate right from the start and it can only get better.

Bank of America offers a similar opportunity to raise the interest rate on its 18-month “Opt-UP CD.”

The big difference is the initial interest rate — a paltry 1.25% APY.

That’s considerably less than the best 12-month CDs are paying right now, and interest rates are simply not going to increase enough to make Bank of America’s CD a better investment.

First Midwest Bank offers savers in Illinois, Indiana, Iowa and southern Wisconsin a 32-Month Rising Rate CD that takes the guesswork out of picking a higher rate.

It opens at 1.41% APY and automatically increases every eight months until it matures at 2.41% APY.

But why would you want to do that when you can earn 2.75% or 2.50% APY on a 36-month CD from any number of banks, collecting the full yield for the full term?

Bottom line: Be skeptical. Most rising rate CDs are a better marketing gimmick than savvy investment.

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