While a bump-up CD is as safe as any CD, there is an included benefit, which when used right, can be a great way to take advantage of interest rates when the interest rate environment is one that is rising.

The duration of a bump-up CD can change from financial institution to financial institution, along with the interest rates offered, so you obviously need to do your homework concerning that.

What a bump-up CD is is just what it sounds like. If you buy a CD that has the bump-up option, what that does is allow you to participate in increased interest rates by telling your financial institution you want the new and higher rate as they’re offered. It’s as simple as that. If the interest rates rise, you contact who you bought the CD from and tell them you want the higher rate. It’s obvious, but you must buy a bump-up CD to get this. You can’t just buy a CD and tell the bank to bump it up, it doesn’t work that way.

The reason why, is the original bump-up CD will carry a slightly lower market rate at the time you buy it. A bank or financial institution will gamble that the interest rates won’t go higher during the time you own the CD, while you’re gambling it will, by buying the slightly lower interest rate. So in essence, both the bank and you are offering one another a carrot and a stick to make the transaction.

If interest rates don’t go up during the time you own the CD, the bank wins because they got use of your money at a better rate than they did from others, thus making more profit. If the interest rates do go up, you win, assuming they go higher than the market rate offered for regular CDs, so the bank makes less profits on your money, while you make a better return.

As a bump-up CD will be insured like any other CD, the risk isn’t in losing your money, the risk is in possibly making a smaller return.

So the obvious time to buy a bump-up CD is when it’s close to certain interest rates will start to rise, so you can essentially lock in a higher interest rate by temporarily accepting a smaller one until the higher rates kick in.

The other thing to take into consideration is the length of time it will take an interest rate to rise. You want to buy a bump-up CD when you believe there will be significant hikes in the interest rates … and soon, as the longer it takes to rise, the less chance you’ll have of making up the difference in interest rates when you first bought them, as it would have to rise fast and high the closer it gets to the end of the ownership period.
 
The strategy would be to buy them as close to the expected interest rate hike as you can, as that would give a CD the chance to move up a couple of times during the time you own it, giving you a much higher interest rate than you would have if you had bought a conventional CD.

Be sure to check with the institution as to how many bump-ups you’re allowed, as at times they’ll limit it to two or less, so you want to be sure if the interest rates rise, that you get the bump.

Also remember that just because the interest rate rises, doesn’t mean the bump automatically kicks in or you have to trigger it. The couple of bumps allowed by most banks can be taken an any time while you own the CD, and so you must keep a careful eye on when the best time will be.

One other thing to watch for is some banks require you to extend the length of the CD when you bump it up.

Keep all these factors in mind when looking into a bump-up CD. They can be great personal finance tools to use to get a better return on your money. Just understand what the bank or financial institution you’re buying it from requires, and watch the Federal Reserve and any expected announcements as to interest rate increases.

Most the times the consensus from analysts is pretty much on the money as to when interest rates will rise, the only question usually how many basis points.

Across the nation bankruptcies and loan defaults are becoming all too common.  Consumers who are not able to keep their commitments financially are found not just here, but in other nations as well.  The clouds of personal finance storms are everywhere: UK Report.

How are our savings accounts holding up?  Is there any hope that we will have anything left once this has passed?

In the Middle of the Storm.  Network news anchors delight in spotlighting the negative so we continue to hear every day about how bad it is becoming.  And while it does appear that the worst might still be ahead of us, the best advice is just to hold on as best you can.  The mounting bankruptcy and loan default numbers tell the story that it is too late for many.  Others are trying to find a way to ward off financial ruin.  Learning how to survive in a ‘down’ economy is challenge all its own but not impossible.  Many who have lost their jobs will be forced to take on other jobs that they never would have imagined just to make ends meet.

After the Storm.  The cycle of economic forces will bring us back around to better times.  This is best chronicled in the years following the Great Depression of the late 1920s.  In the years following WWII, the steady and strong growth of our economy went unabated for decades.  Our nation needs a reason to begin the rebuilding process, but hopefully it will not be another world war.  So, we look for a catalyst to point the way out hopefully sooner rather than later.

Re-building.  After our economy begins to come back to life, there will be many opportunities from which to profit and rebuild savings and investment accounts.  But, it will require global demand for products and services which will create jobs in the private sector.  The best role for government in all of this is to help the process along.  Contributions to the ability to re-start saving and investing can be made by lowering taxation and regulation where possible.

The most confident and respected advisers tell us to do what it takes to survive, look for opportunities to save money for the things that matter, and be on the lookout for improving financial signs that help us make wise decisions when it comes to saving and investing.

Available now is a high-yield savings account from WTDirect.  WTDirect is a division of Wilmington Trust FSB of Baltimore Maryland.   Founded in 1903, the Wilmington Trust family of companies maintains offices in the U.S. as well as abroad and employs 2,500 people.  Including their affiliate money managers they have more than $48.1 in managed assets.  They pride themselves on their long-term growth strategy and stability while minimizing volatility.

This high-yield savings account features an interest rate of 3.31% APY with a balance that is built up to $10,000 after 60 days.  Otherwise, the rate drops to .50%.  There is no minimum to open the account.

You can make unlimited deposits and up to six withdrawals per calendar month or monthly statement cycle.  You also can transfer money between WTDirect and your other financial institutions.  There are no transaction or inactivity fees.  And, no checking account is required in order to obtain the high rate.

WTDirect has a $0 Liability Guarantee with restrictions in the event of an unauthorized transaction on your account.

There is only one caveat to this account buried in the fine print:  “You understand and agree that we may from time to time impose additional charges in connection with your Bank to Bank Transfer transactions. We will notify you of such fee in advance of the transaction. If you choose to proceed with the transaction, you authorize us to debit your account in the amount indicated.”  These institutions almost always provide for activities such as these, but it is better knowing about them up front.  Read the account details before you open an online savings account with any institution.