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Boost Your Savings with Bump-Up CDs

Bump-up CDs are a relatively unknown concept to many people. So, what exactly are they and why might they be a great addition to your savings portfolio?

November 09, 2022 | Madison Foster

Pink piggy bank next to a standard calculator on top of stacks of paper charts and graphs.

Certificates of deposit – known as CDs – are one of the safest forms of investment savings. With a guaranteed rate of return sheltered from market fluctuations, you typically select the term that works for you and leave the funds alone until maturity.

From here, you can either renew the CD for another term or cash it out and collect the initial deposit, plus all the interest earned.

But what if there was an option that offers the security of a traditional CD, plus the opportunity to take advantage of a rising rate? Good news, there is one – it’s called a bump-up CD.

What is a bump-up CD?

A bump-up CD is just like a traditional CD in all ways but one – instead of one set interest rate in place for the full term of the CD, you have the option to raise, or “bump,” your rate once before maturity to take advantage of a rising rate environment and match a higher rate.

Here’s an example to help visualize a bump-up CD in practice. Let’s take OMB’s 19-month 4.04% APY Bump-Up CD Special and assume you open one before Thanksgiving.

In the summer, rates go up a little more and you exercise your one-time bump to take advantage. This is then the rate you’ll earn until your CD matures the following year.

What is the advantage of a bump-up CD?

Unlike traditional CDs or a step-up CD, which places rate increases on a predetermined increase schedule at the time of account opening, bump-up CDs allow you take full advantage of rising rates and earn a higher yield without incurring a penalty for closing the CD. Plus, the timing is completely in your control as you’re the one to request the rate increase.

How to decide if a bump-up CD is right for you?

If you’ve decided to utilize CDs as part of your savings portfolio, consider bump-up CDs if you want the stability of a traditional CD, plus the perk of a yield that may increase when the market improves.

For maximizing wealth-building, try combining savings strategies. First, make a plan for short-term or emergency savings. Then, consider laddering your CDs. This strategy can be very effective with bump-up CDs included. Finally, make sure you have a plan in place for retirement.

*APY = Annual Percentage Yield and is accurate as of 11.7.2022. Initial APY for 19-month term is 4.04% until you exercise your request for a one-time bump up option within the initial term provided rates have increased. Subsequent rate will be the Federal Prime Rate index minus 3.00% at the time your one-time signed request is received. Option to increase rate and APY requires you to visit an OMB branch and request the increase in writing before the maturity date. Rates subject to change without notice; see Truth-in-Savings for complete account disclosure. Requirements include a minimum opening deposit of $1,000. A penalty may be imposed for early withdrawal of funds. The renewal rate for the 19-month term will be based on the 18-month board rate in effect at time of maturity. Offer is good for a limited time only and may be withdrawn at any time at the bank’s discretion. Fees could reduce earnings. Available for consumer and commercial accounts. Member FDIC

OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.

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