Worried Interest Rates Will Keep Rising? These 3 CDs Could Be Your Best Bet

A certificate of deposit, or CD, can allow you to lock in a high APY for a period of a few months to several years. This can be an excellent way to produce a guaranteed income stream from your savings, especially since most experts predict that rates will start to fall soon.

However, there's absolutely no guarantee that interest rates will fall. In fact, if inflation remains high or even rises, it's entirely possible that the Federal Reserve will have to increase rates even further, and this would likely produce rising CD rates as well. And if this happens, you might regret locking your money into today's APY with a CD.

There's a good compromise available. By opening a bump-up CD (some banks may have their own unique names for them), you can lock in a specific APY while also protecting yourself if rates rise. Here's how they work, and where you can find them.

What is a bump-up CD?

A bump-up CD (also commonly referred to as a step-up CD) works like a standard CD in many ways. You commit to keeping your money on deposit for a certain length of time (two years is a common term length for bump-up CDs), and you get a guaranteed APY for the entire term.

The big difference is that you have the option to request an interest rate increase if the bank's bump-up CD rates increase during your term.

For example, let's say that you get a 2-year bump-up CD with an APY of 4.00%. One year later, the bank is offering an APY of 4.75% on bump-up CDs. You can call the bank and ask for your rate to be adjusted to the higher one.

In most cases, you can only request an increase once during your term, and some longer-term bump-up CDs allow you to do this twice. But this can be valuable protection in the event that rates rise during your term.

Note that the APY you get from a bump-up CD is likely to be somewhat lower than the APY the same bank offers for standard CDs of the same length. But it could certainly be worth giving up a small amount of yield in exchange for protection in the event rates start to rise.

Three top bump-up CDs you can open right now

Several banks offer bump-up CDs. Here are three of my favorites and a little more about each one.

1. Marcus by Goldman Sachs Rate Bump CD

Marcus by Goldman Sachs calls its product the Rate Bump CD, which comes in a single 20-month term. The Rate Bump CD offers a 4.40% APY as of this writing, and allows a one-time rate increase at a time of your choosing during the term. You are under no obligation to use the rate increase if you don't need it.

To open a Rate Bump CD, you'll need at least $500. And just for context, Marcus' closest standard CD term is 18 months, and it currently offers a 4.60% APY on this product. So, you're giving up a relatively small amount of APY in exchange for the option to raise your rate at some point in the future.

2. Synchrony Bank Bump-Up CD

Synchrony Bank offers a 24-month Bump-Up CD that comes with a 3.60% APY (compared to a 4.20% APY for a standard CD of the same term). Like the Marcus product discussed earlier, it allows for a one-time rate increase during the CD's term. However, unlike the Marcus example, the Synchrony Bank Bump-Up CD doesn't have any minimum balance requirement.

3. Ally Bank Raise Your Rate CD

Ally Bank's Raise Your Rate CD is a rare example of a bump-up CD that comes in two different term lengths of two and four years. The 2-year and 4-year Raise Your Rate CDs currently both have the same 3.75% APY and have no minimum opening deposit. The 2-year Raise Your Rate CD allows for a one-time rate adjustment during the term, while the 4-year version allows the customer to request a rate adjustment as many as two times during the term.

The best of both worlds

As mentioned, a bump-up CD gives you a combination of a guaranteed APY and the ability for that APY to get even higher if rates end up rising. You get the best of both worlds -- the income visibility of a CD with the ability to benefit from rising interest rates that savings accounts offer.

Again, the most likely scenario is for interest rates to fall over the next year or two. For context, the latest projections from the Federal Reserve call for three rate cuts before the end of 2024. However, there's no guarantee that will happen, and if you want to protect yourself in case the experts turn out to be wrong (hey, it wouldn't be the first time), one of these bump-up CDs could be a good choice.