A Certificate of Deposit (CD) is a great way to invest your money without the concern of our ever-changing stock market. By investing in a fixed-rate CD, you know precisely how much you will have when the CD matures. But, if the interest rate rises, you will not be able to take advantage.
A common alternative to a conventional CD is a Variable-rate CD, which allows the interest rate to change as the CD matures. If you are interested in a Variable-rate CD, they are structured differently depending on the bank that you buy it from. Some banks offer a “multi-step” structure, which adjusts the CD’s interest rates along with a pre-determined schedule, often tied to U.S. Treasury Note rates. Other banks offer Variable-rate CDs that follow a common interest index, such as the Dow Jones Industrial Average (DJIA). There may be some restriction as to how many times the interest rate can be changed and it is not risk-free… if the interest rate is lowered, the CD’s interest rate will lower as well.
There is a new way in the banking of CD’s to take advantage of the current rise in interest rates, without the risk of a Variable-rate CD. The “Opt up” CD offered by Bank of America is a twist on the conventional CD by giving the option of increasing the interest rate one time after the first six months, with no fees or term extensions. The minimum opening balance is $10,000 and it must have an 18-month term, but it might just be the next best thing to a Variable-rate CD. Check your local bank and shop interest rates and terms to get the best deal!
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