Step-Up CD vs. Traditional CD

June, 21, 2022

What Is a Step-Up CD?

Most analysts speculate that the Federal Reserve will raise interest rates several times this year. As such, savers may be reluctant to lock in an interest rate with a long-term certificate of deposit (CD) for fear of missing out on a higher rate down the road. Therefore, some savers are turning to a Step-Up CD to avoid that risk.

A Step-Up CD lets a saver secure an interest rate for a certain term but then request a one-time increase in the rate during the term. This type of CD can lead to higher returns than a traditional CD does.

How Does a Step-Up CD Work?

At Texas Regional Bank a Step-Up CD (also known as a bump up,  variable-rate, multi-step or bonus-rate CD) refers to a certificate of deposit that allows a one-time increase in the rate during the term of the CD at the request of the account owner. When the rate is increased, the account owner can also add more money to the CD.

Aside from the ability to increase the rate one time and add more money, a Step-Up CD behaves like a traditional CD.

What Is a Traditional CD?

A traditional CD (or any other type of CD) is a time-bound deposit. By agreeing to leave money in your CD over a set term, the financial institution pays a higher interest rate than you would earn with a traditional savings or money market account.

Since you are earning a higher interest rate with a CD, you can not withdraw money until the term of CD ends. If you withdraw money out of the CD before the term ends (called the maturity date), you will be charged a penalty fee depending on the term and amount of the CD.

When you open a CD, a typical minimum deposit is $1,000.

Every CD is federally insured for up to $250,000 per account owner holder, not per CD.

Many analysts consider CDs to be one of the safest forms of investment offers. They also pay higher interest rates than money market accounts and savings accounts, making a CD a more lucrative low-risk option for investors,” according to

A 2019 survey by, a personal finance website, showed that nearly one-fifth of Americans have at least one CD. Virtually every bank and credit union in the U.S. offers CDs or financial products similar to CDs.

How Do People Use CDs?

The 2019 survey by indicates the reasons that Americans open CDs. The top four reasons are:

  1. General long-term savings, 49%
  2. Saving for retirement, 31%
  3. Saving for a home, 30%
  4. Saving for college, 22%

 How Is CD Interest Paid?

Texas Regional Bank’s CDs compound and pay interest on a quarterly basis. Other financial institutions may compound and pay interest on different schedules, such as daily or monthly. Compound interest refers to earning interest on the initial deposit as well as the accumulated interest.

The interest rate and the frequency of compounding determine how much interest you earn during the term of the CD.

Should You Open a CD?

Whether it’s a Step-Up CD or a traditional CD, ask these questions before opening an account:

  • What do you plan to do with the money? If you’re saving for retirement or your child’s college education, opening a CD might be a smart move since you likely won’t need the money before the CD term ends. However, if the money is meant for emergency savings, a CD might not be the way to go. You might need access to the cash before the CD’s maturity date.
  • What is the APY? Be sure you understand what the CD’s APY (annual percentage rate) will be. The APY reflects the amount of interest you will earn within the term of the CD, taking into account the impact of compound interest. Knowing the APY will help you decide whether you want to lock up a sum of money for a certain period of time.
  • How much is the minimum deposit? In order to open the CD, what is the minimum amount of money that you must come up with? Can you afford to part with that money right now?
  • How long do you want to keep your money in a CD? If you are more comfortable with a 24-month CD rather than a 48-month CD, then you probably should choose the 24-month option. If you are not worried about your money being tied up for a longer amount of time, the 48-month option may be right for you.
  • What is the early withdrawal penalty? If you decide to withdraw money out of the CD before the CD matures, how much of a penalty will you pay? The longer a CD’s term is, the more the penalty is likely to be.

Are you ready to open a Step-Up CD at Texas Regional Bank? Apply online today!

Texas Regional Bank

Texas Regional Bank is a privately owned institution that was founded in South Texas with the goal to bring a locally-owned, relationship style bank back to the communities we serve. TRB is committed to building a relationship with our customers by providing exceptional customer service, financial products, and mobile and online banking.