Bump-Up CDs: What They Are And How They Work

A bump-up certificate of deposit (CD) is a type of CD that allows you to increase your interest rate at least once during the term if rates rise.

Unlike traditional CDs with fixed rates, bump-up CDs give savers the flexibility to request a rate increase — typically once or twice over a 2-3 year term. Bump-up CDs typically offer initial rates that are slightly lower than traditional CDs. The best CDs on the market right now offer annual percentage yields (APYs) of around 4.25 percent, according to Bankrate data.

Bump-up CDs work best when interest rates are rising, but require you to actively request the rate increase — it doesn’t happen automatically. With interest rates falling, bump-up CDs are likely not the best option, but they do offer some rate flexibility during your term (something traditional CDs don’t offer).

What is a bump-up CD?

A bump-up CD is a savings account with a specified maturity date and a stated rate of interest that gives you the option to increase your rate if market rates go up during your term. Think of it as insurance against rising rates — you’re not locked into your opening rate for the entire term.

Here’s how the bump feature works:

• You open a bump-up CD at the institution’s current rate
• Interest rates rise during your CD term
• You request a rate increase (you must ask — it’s not automatic)
• Your rate increases to the current offered rate
• You’ve used your bump (most CDs allow only one increase)

Most bump-up CDs have terms of two or three years, giving ample time for rates to potentially rise. The longer term makes sense because short-term rate movements are harder to predict and benefit from.

How do bump-up CD rates compare to traditional CDs?

Bump-up CDs typically offer lower initial rates than traditional CDs of the same term. You’re paying for the flexibility to increase your rate later. According to Bankrate’s analysis of rates from major financial institutions, bump-up CDs start with APYs that are approximately 0.10 to 0.25 percentage points lower than comparable traditional CDs.

For example: A 24-month traditional CD might offer 4.50% APY, while a 24-month bump-up CD from the same bank offers 4.25% APY. That 0.25 percentage point difference is the cost of the bump-up option.

For the bump feature to be worthwhile, rates need to rise enough to offset your lower starting rate. If rates only increase by 0.15 percentage points and you started 0.25 points lower, you’re still behind where a traditional CD would have been.

How does a bump-up CD work?

As with a traditional CD, you commit to leaving your money in a bump-up CD for the entire term, which can range from a few months to several years. Most bump-up CDs have two or three-year terms. Here’s the step-by-step process:

Opening the CD

You deposit your money and lock in the initial interest rate. This rate is typically lower than what you’d get with a traditional CD, but you’re paying for the flexibility to increase it later.

Monitoring rates

You need to watch market rates yourself. The bank won’t notify you when rates go up — it’s your responsibility to track rates and decide when to use your bump.

Requesting the increase

When you see rates have risen, you contact your bank to request a rate increase. Some institutions let you do this online, while others require a phone call or branch visit.

Getting the new rate

Your CD rate increases to the current offered rate for that term. The new rate applies going forward — you don’t get retroactive interest on past months.

Important restrictions: There may be rules about how much you can bump up the rate at one time, and most bump-up CDs permit only one rate increase during the entire term. Some longer-term CDs (typically those for three years or more) allow multiple bumps. Always check with your bank for specific terms.

Also keep in mind that if you take your money out of a CD before the maturity date, you can expect to pay an early withdrawal penalty, unless it’s a no-penalty CD. These penalties typically equal three to 12 months of interest.

Bump-up CD vs. step-up CD: What’s the difference?

Bump-up CDs and step-up CDs both offer rate increases during your term, but they work differently:

Bump-up CDs: You control when the rate increase happens. You watch market rates and request an increase when you think the timing is right. The new rate matches current market rates.

Step-up CDs: Rate increases happen automatically on a predetermined schedule. For example, your rate might increase every six months regardless of what market rates are doing. The increases are set in advance and don’t necessarily match market rates.

Step-up CDs are more hands-off but typically start with even lower rates than bump-up CDs. Bump-up CDs require active monitoring but give you more control over timing.

When should you choose a bump-up CD?

Bump-up CDs make the most sense in specific market conditions—and right now may not be one of them.

Consider a bump-up CD when:

• The Federal Reserve has signaled potential rate increases
• You have a 2-3 year savings timeline that matches the CD term
• You’re comfortable actively monitoring rates and requesting increases
• The initial rate is only 0.10-0.15% lower than comparable traditional CDs

Think twice about bump-up CDs when:

• Rates are falling or expected to remain stable (like the current environment)
• The initial rate gap exceeds 0.25 percentage points
• You prefer a set-it-and-forget-it savings approach
• Short-term CDs (under one year) meet your needs

According to Bankrate’s latest CD rate survey, the gap between traditional 2-year CDs and bump-up CDs has widened to approximately 0.25 percentage points. With the Federal Reserve signaling continued rate cuts through 2025, this gap is unlikely to narrow significantly in the near term.

Bump-up CD example

Let’s say you want to set aside $10,000 for home improvements. You believe that you won’t need the funds for a couple of years but want to see the money grow safely in the meantime and take advantage of any increase in rates. A bump-up CD with a two-year term could be ideal, provided you don’t need the funds before the term ends.

You invest in a bump-up CD offering an initial 4.00% APY. Then, after a year, rates improve, boosting the APY for a bump-up CD to 4.30%. So you use your one bump-up to take advantage of the new, higher rate.

Your earnings:

• Year 1: $10,000 × 4.00% = $400
• Year 2: $10,400 × 4.30% = $447.20
• Total interest: $847.20

If it turns out that you need your funds during the two-year period, be sure to understand how much the early withdrawal penalty will cost to determine whether a bump-up CD is right for you.

Use Bankrate’s CD calculator to see how much you could earn with different rate scenarios and terms.

Bump-up CD pros and cons

If you’re considering a bump-up CD, here are the costs and benefits:

Advantages

• Opportunity to capitalize on rising rates: The biggest advantage of a bump-up CD is the ability to raise your rate over the course of the term. If interest rates increase during the term, you’ll be able to match that increase and earn more interest more quickly.
• Potentially higher returns: Although bump-up CDs might start with a slightly lower rate, the potential to adjust could lead to overall greater returns if you time it right.
• No need to constantly monitor: Unlike regularly rolling over short-term CDs to try and capture better rates, with a bump-up CD you can stay in the same term and adjust the rate when beneficial—or never adjust it at all if rates decline.
• Same safety as traditional CDs: Bump-up CDs offer the same FDIC insurance protection as traditional CDs (up to $250,000 per depositor, per institution).

Disadvantages

• Lower initial rates: Bump-up CDs often start with a lower APY than other types of CDs. A traditional CD may net you more interest over the full term than a bump-up CD, depending on market conditions.
• Limited number of bumps: Most bump-up CDs restrict the number of times you can adjust the rate to once or twice. Should rates climb and continue to do so, you may move too soon, missing out on an even greater APY increase.
• No automatic adjustment: You need to proactively request the rate increase. If you’re not paying attention to market rates, you could miss out on the opportunity to bump up.
• Timing risk: If you use your bump too early, you might miss even better rates later. If you wait too long, rates might start falling before you act.

How to open a bump-up CD

Opening a bump-up CD is similar to opening other types of bank accounts, though fewer banks offer them. Here’s what to do:

1. Compare rates and terms

Look at bump-up CD offerings from multiple institutions. Pay attention to:

• Initial APY
• How many rate increases are allowed
• Minimum deposit requirements
• Early withdrawal penalties

Compare these offerings to traditional CDs at the same institutions to see if the bump-up feature is worth the lower starting rate.

2. Check if you can find better rates elsewhere

You’ll likely find better CD rates with online-only banks compared to traditional brick-and-mortar institutions. Online banks have lower overhead costs and often pass those savings to customers through higher rates.

Check Bankrate’s top-rated CD accounts to see current offerings from both online and traditional banks.

3. Gather your information

Before you apply, have ready:

• Government-issued ID (driver’s license or passport)
• Social Security number or Tax ID
• Funding source (checking account information for transfer)

4. Complete the application

Most banks offer online applications that take 10-15 minutes to complete. You’ll provide personal information, choose your term length, and fund your account.

5. Set a rate-monitoring reminder: Since bump-up CDs require you to actively request rate increases, set calendar reminders to check rates every few months. This ensures you don’t miss opportunities to use your bump.

Alternatives to bump-up CDs

There are several alternatives to bump-up CDs that you may want to consider, depending on what you’re looking for from your savings:

Traditional CDs

A fixed account with a fixed term and interest rate. Most banks and credit unions offer CDs with terms ranging from three months to as long as five years. Traditional CDs typically offer higher rates than bump-up CDs and work well when rates are stable or falling.

Step-up CDs

Similar to a bump-up CD, but the rate increases happen automatically at set intervals rather than when you request them. Step-up CDs remove the monitoring burden but typically start with even lower rates. Learn more about how step-up CDs work and when they make sense.

CD laddering

A strategy for maximizing savings by opening multiple CDs with different maturity dates. As each CD matures, you can reinvest at current rates. This gives you regular opportunities to capture higher rates without sacrificing too much yield.

High-yield savings accounts

Unlike CDs, high-yield savings accounts let you access your money anytime without penalties. Rates are variable and can go up or down, but you have complete flexibility. These accounts work well for emergency funds or when you’re not sure of your timeline. See Bankrate’s best high-yield savings accounts for current top rates.

Bottom line: Is a bump-up CD right for your savings strategy?

Bump-up CDs are most advantageous in a rising rate environment, when you have the potential to earn more during the CD’s term. But in today’s market, with the Federal Reserve cutting rates, there are still opportunities to lock in rates well above national averages with traditional CDs — without giving up yield for a bump-up option you may never use.