What Is a Bump-Up CD?
A bump-up certificate of deposit (CD), also called a rate-bump CD, is a savings vehicle that offers more flexibility than a traditional CD. While most CDs lock in your interest rate for the full term, a bump-up CD allows you to request a higher rate if interest rates rise after your initial deposit. This feature can come in handy if or when interest rates climb.
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There are many types of CDs, but with a traditional CD, your rate remains fixed from the moment you open the account until the term ends. That means if the bank increases its interest rates during your term, you will not benefit from the new, higher yields. A bump-up CD allows you to take advantage of higher rates during the term. However, some banks or credit unions may limit the number of rate adjustments, depending on your CD’s term.
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Quontic 6 Month CD
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APY: 3.75%
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Takeaways
- Bump-up CDs let you increase the interest rate one time during the CD’s term.
- You want to use a bump-up CD during times of increasing interest rates.
- Bump-up CDs let you increase the interest rate one time during the CD’s term.
- Like with most CDs, you might incur an early withdrawal penalty.
- Bump-up CDs are federally insured by the NUCA or FDIC for up to $250,000.
How a Bump-Up CD Works
Like traditional CDs, when you open a bump-up CD, you agree to keep your funds in the account for a fixed term (3 months, 6 months, 1 year, etc.). During this time, your money earns interest at the bank or credit union's APY for this product, which may vary. For example, as of January 2026, a 12-month CD yields an APY of 1.9%.[1]
But market conditions change all the time. The Federal Reserve can raise the federal funds rate it offers to banks, or interest rates can spike due to investor concerns about inflation. If you own a Bump-up CD, you can request a change from the initial lower interest rate to the current higher interest rate. Some bump-CDs even offer set interest rates.
An interest rate change to your CD is usually allowed only once during the term, unless the specific CD product offers multiple bump opportunities, which are usually preserved for CDs with longer terms – say 1 to 5 years. After the bump is applied, your new interest rate will be in effect for the remainder of your CD’s term.
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Example of a Bump-Up CD in Action
Let’s take a look at a real-world example of how a bump-up CD could work:
In this case, let’s say you invest $10,000 in a 36-month bump-up CD that offers an initial APY of 3.75%, while the prevailing interest rate for a traditional CD of the same term is 4.00%. This discount to the prevailing interest rate compensates the banks for if, or when, you decide to capture increasing interest rates.
After 1 year, the bank raises the rate on that same CD product to 4.75%, and you want to lock in the higher rate. So, you contact the bank and request your one-time rate increase. From that point forward, your CD will earn interest at the 4.75% for the remaining 24 months.
By taking advantage of the “bump” from 3.75% to 4.75%, you will earn more interest income over the full term of the CD than you would have at the original 3.75%.
Smart Tip:
If you own a CD, you will need to report your interest income using Form 1099-INT at tax time.
Pros of a Bump-Up CD
- Interest Rate Flexibility - The advantage of a bump-up CD is the ability to swap your interest rate during your term.
- Fixed Term and Predictability - Like other CDs, a bump-up CD has a defined term and maturity date.
- Low Risk - CDs are usually insured by the FDIC or the NCUA up to $250,000 per depositor, per institution. Because they are insured, they are considered a safe place to invest your money.
- No Market Volatility - Because your rate is set at the beginning of your CD term, your interest earnings are all but guaranteed.
Read More: 9 Ways to Earn Passive Income
Cons of a Bump-Up CD
- Lower Initial Rates - To compensate for the option to raise your rate, banks often start bump-up CDs with slightly lower APYs than standard CDs with the same term.
- Limited Rate Increases - Bump-up CDs may limit the amount of rate increases during your term. With a limited number of rate increases, you might not be able to fully capture rising yields.
- Manual Intervention Required - Rate bumps are not automatic. You will need to watch the market and request the bump yourself.
- Early Withdrawal Penalties - As with most CDs, accessing your money before the maturity date may incur a penalty. Make sure you are only allocating investment funds to your CD, so you don’t need to access them in case of a financial emergency.
Bump-Up CD vs. Step-Up CD
It is easy to confuse bump-up CDs with step-up CDs, but the two work quite differently. Here’s the difference:
- Bump-Up CD - The rate increase is at your request. You choose when to request a higher rate, assuming your bank has raised the rate for new deposits into that exact product.
- Step-Up CD - The bank increases the interest rate at scheduled intervals. These rate changes happen automatically, but the new rate may not match current market conditions.
When You Should Consider a Bump-Up CD?
A bump-up CD can be a good fit for you if you want a stable savings vehicle but are concerned about not being able to capture rising interest rates. A bump-up CD comes with a mechanism to trigger capturing rising rates.
Take the Next Step and Invest in a CD:
Member FDIC
Quontic 6 Month CD
Smart Money Rating: 5/5
APY: 3.75%
Required Minimum Balance: $500
If you like this risk-to-reward balance, a bump-up CD could be a perfect solution. But make sure to allocate enough of your portfolio to a CD. Most CDs require a small minimum deposit, somewhere between $500 and $1,000, but if you are all in on CDs, you can scale up to a jumbo CD, which can have a minimum investment of $100,000 or more.
Smart Summary
A bump-up CD is a savings tool that combines the safety of a traditional CD with a touch of flexibility. It allows you to take advantage of rising interest rates without sacrificing the stability and low risk that CDs are known for. Before selecting a CD, compare terms, rates, and conditions across banks to decide which CD product best fits your goals.
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(1) Bankrate. Current CD rates for January 2026. Last Accessed January 30, 2026.
