What is a bump-up CD?

Some banks and thrifts offer CDs that let you bump up the rate if interest rates rise. For example, if you buy a one-year CD that yields 5 percent, and six months from now the bank is offering 5.25 percent on one-year CDs, you can ask the bank to bump your rate for the remaining six months.

Bump-up CDs usually yield less at the outset than CDs that don’t offer this feature. Some banks restrict you to one bump per term, others let you bump twice. If you decide to bump, you might have to extend the term of your CD.

Bump-up CDs only make sense if you have a very strong feeling that interest rates are going to rise.