Lots of banks, especially smaller banks, are trying to woo customers with “step-up” certificates of deposit.
They promise buyers that they can “step up” to a higher interest rate if the bank raises the advertised rate on that type of CD any time during the term of the loan.
Most banks will let you step up once. A few will let you step up as many as three times.
With interest rates so low right now, the banks are selling you on the idea that you won’t lose out by putting your money into a long-term CD if rates begin to climb again.
Is that a worthwhile offer?
We think you should judge step-up certificates of deposit just like any other CD.
If the initial interest rate is competitive, go for it. Consider the step-up feature to be no more than a tie breaker if you’re considering offers with similar interest rates.
Also consider a step-up on a standard term certificate of deposit (24- or 36-months) to be more valuable than on an odd-term CD.
Why? Because the bank can create an odd-term CD just for its step-up promotion with no intention to raise the rate no matter what happens.
If interest rates go up and the return on its 30-month certificate of deposit is no longer competitive, so what? It just stops promoting the 30-month CD. But it always has to publish 24-month or 36-month rates.