DEFINITION of 'Bump-Up Certificate of Deposit - Bump-Up CD'

A savings certificate entitling the bearer to take advantage of rising interest rates with a one time option to "bumping up" the interest rate paid. The bump-up certificate of deposit (bump-up CD) yields a lower rate than that of a similar certificate of deposit (CD) with no bump-up option.

BREAKING DOWN 'Bump-Up Certificate of Deposit - Bump-Up CD'

The purchaser of a bump-up CD is hoping that interest rates will go up. Once up, the holder can elect to increase the interest rate to the now higher going rate. If interest rates don't rise, there is the opportunity lost of having to keep the lower interest rate for the term of the CD.

When purchasing a bump-up CD, be sure to find out how many times you are allowed to bump-up the interest rate, and whether you have to extend the term of the CD with each bump-up.

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