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What Are Step-up CDs & How Do They Work?

Last updated 03/14/2024 by

Camilla Smoot

Edited by

Fact checked by

A step-up CD is a certificate of deposit that increases the APY at scheduled times until the maturity date. Because of this, most step-up CDs have a low-interest rate at the start of the term of the CD.
A certificate of deposit (CD) is a low-risk investment and usually has a guaranteed return. Because of this, many people who can afford to part with a large amount of money for a set time are drawn to investing in these.
One type of CD is a step-up CD. These CDs are becoming less and less common, but some larger credit unions and banks (such as US Bank) offer step-up CDs. But step-up CDs work differently than traditional CDs, and these features make all the difference in deciding whether or not this type of CD is right for you.

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What is a step-up CD and how does it work?

A step-up CD is a certificate of deposit that gradually increases the interest rate as the CD matures. This rise in interest rates happens on a fixed schedule, so you’ll know what the increase will be and when it will happen. This is different from a traditional CD, which has the same interest rate throughout its maturity.
So, for example, a person could buy a 28-month step-up CD with an initial rate (or yield) of 0.5%. Every seven months, the interest rate goes up by 0.7%. The exact percentage of the increase and when it happens will depend on what bank your CD is through.
These CDs are also sometimes referred to as rising-rate or step-rate CDs. Step-up CDs are only offered by certain banks and credit unions, so your financial institution of choice may not offer this specific type of CD.

Step-up CDs vs. bump-up CDs and traditional CDs

You’re likely familiar with how traditional CDs work, and maybe you even know how the more common bump-up CDs function. Both have features that resemble step-up CDs, but they have significant differences that set them aside from each other. We’ll review these differences and similarities here so you won’t mix them up.

Bump-up CDs

Though the names and concepts are similar, these two types of CDs have some key differences you should be aware of.
  • What’s the same: With both a bump-up CD and a step-up CD, your annual percentage yield (APY) is raised before the CD reaches maturity.
  • What’s different: Banks and credit unions automatically raise a step-up CD’s interest rate. In order to raise interest rates for a bump-up CD, the investor has to request it specifically. It does not happen automatically or at a set time. Rates can only increase once or twice in a bump-up CD, while it occurs multiple times with a step-up CD. Because of the clear benefits step-up CDs offer, bump-up CDs are also more common than step-up CDs.
If you’d rather control when your APY increases, take a look at some of the bump-up CD accounts below.

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Traditional CDs

If you’re familiar with what a traditional CD is, it could be helpful to compare a step-up CD to it. Here are some notable similarities and differences between the two.
  • What’s the same: A traditional has a lot of similarities to a step-up CD, as the basic concept is just about the same. They are both time-bound, meaning you agree to leave your money untouched in the deposit. Withdrawing money from the deposit before the maturity date will result in early withdrawal penalties.
  • What’s different: The biggest difference between a traditional CD and a step-up CD is how interest rates are handled. Traditional CDs have a set interest rate that never changes, but a step-up CD’s interest rate rises a set amount at scheduled times until the maturity date.
Some investors prefer to have one interest rate throughout the CD term to ensure consistent interest payments. If you’d prefer to start out with a traditional CD, take a look at some of the available accounts below.

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Pros and cons of a step-up CD

Many of the pros of a step-up CD are similar to those of a traditional CD. The cons are what set it apart from these CDs, so be sure to review them carefully when deciding which CD to go with.
Here is a list of the benefits and drawbacks to consider.
  • Low-risk investment. Like most other certificates of deposit, step-up CDs are both NCUA- and FDIC-insured. This means a good portion of your money ($250,000 to be exact) is protected if the bank or credit union your CD is through fails.
  • Guaranteed returns. Another aspect that makes draws many people to get a certificate of deposit is that you’re guaranteed returns. This means that you are guaranteed a return of the principal and interest earned at the end of the CD term.
  • Benefits from the interest rate increase. The biggest advantage a step-up CD has over a traditional CD is the potential to take advantage of rising interest rates. With a traditional CD, you are locked into the same rate for the entire term of the CD. If the interest rate increases, you could miss out on that added income. But with a step-up CD, your interest rate increases, which — depending on the term length — can help you earn more than you would with a traditional CD.
  • Other CDs could have better interest rates. A major limitation of step-up CDs is their initial APY. Because your interest rate will increase until the maturity date, the initial interest rate will likely be much lower than other CDs. Because of this, you should be sure that the term length of the step-up CD is long enough to make more than you would with other CDs.
  • Cannot withdraw money without a fee. This is a caveat of almost every certificate of deposit. Once you invest that money into the deposit, it has to stay there untouched until it matures. If you have to withdraw money from it, you’ll face an early withdrawal penalty. So before you invest in any CD, be sure you’re financially secure enough to part with the money and won’t have to withdraw any.
  • Not offered by all banks and credit unions. Other CDs are more common than step-up CDs, which could make it more difficult to find financial institutions that do offer a step-up CD. Not just that, but you may not have many options to compare the rates to, and this could result in your only option being a step-up CD with a poor rate.

Pro Tip

Even though step-up CDs aren’t offered by all financial institutions, there are still credible banks and credit unions out there that do. US Bank, TD Bank, VyStar Credit Union, and Wings Financial Credit Union are four institutions that offer step-up CDs.

Is a step-up CD right for me?

In short, a step-up CD is best for someone who is looking for a low-risk way to expand their investment portfolio and can afford to leave a chunk of money untouched for a significant amount of time.
To be frank, step-up CDs can be tricky and are not commonly purchased by investors. This can be because they tend to have lower interest rates at the start and aren’t sold by every financial institution. The banks and credit unions who do sell them likely have limitations on how long the term can be. If the term length is too short, it may not be worth the investment. Because of this, a different CD may be better for you.
However, depending on the length of the CD, you could end up earning more with a step-up CD than you would with a traditional CD. Generally speaking, the longer the length of the step-up CD, the more money you could earn. So, be sure to carefully compare terms, rates, and limitations before choosing to go with a step-up CD.

Alternatives to a step-up CD

If you like the idea of a step-up CD but don’t feel like it’s right for you, you have a couple of other options you can choose from. One similar — and more common — option is a bump-up CD. Like a step-up CD, you can raise your APY of a bump-up CD before the maturity date. Usually, the rate increases only once, but you get to choose when to increase the rates. This helps you take advantage of rising interest rates without some of the downfalls of a step-up CD.
Another option is CD laddering. A CD ladder is when an investor purchases multiple CDs with different maturity dates. This is another way to take advantage of rising interest rates and avoid an early withdrawal penalty.
If you prefer to avoid CDs altogether, you may want to look into some other options, like a high-yield savings account or money market account. Both accounts offer high interest rates, often between 1% and 3%, meaning you could earn a decent bit of interest on your money. Take a look at some of the interest-bearing savings accounts below to get started.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Are laddering CDs worth it?

Laddering CDs is a smart investment method for those who want to take advantage of rising interest rates or may want to access money from their CDs without an early withdrawal penalty. You can always ask a financial advisor for advice before committing to this method.

Are brokered CDs a good idea?

Whether or not a brokered CD is a good idea depends on your financial situation. Brokered CDs are for those looking for a long-term CD with a high-interest rate, the option to withdraw money early without paying a fee, or the convenience of consolidating multiple CDs into one account.

Key Takeaways

  • Step-up CDs are certificates of deposit that increase the interest rate at a set rate on scheduled dates.
  • Aside from the increased interest rates, step-up CDs are nearly identical to traditional bank CDs.
  • The initial APY for most step-up CDs is lower than for traditional CDs.
  • Many banks and credit unions do not sell step-up CDs, and those who do may only sell them for short-term lengths.

Compare every option before investing

While only a handful of banks and credit unions offer step-rate CDs, many offer traditional bank CDs. This can make comparing rates overwhelming. How do you make sure you get the best one? What if you miss a bank or credit union that has a great rate?
Well, thankfully, SuperMoney can help with comparing and researching CD rates. Learn about the best CD rates here and compare current CD rates here.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Camilla Smoot

Camilla has a background in journalism and business communications. She specializes in writing complex information in understandable ways. She has written on a variety of topics including money, science, personal finance, politics, and more. Her work has been published in the HuffPost,, Deseret News, and more.

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