(Begin VIDEO with Kristin Arnold, Bankrate.com anchor introducing the video topic)
Anchor Intro: Interest rates are bound to rise eventually and CD investors are understandably reluctant to lock into long-term CDs. But Bankrate.com has recently surveyed some of the rising rate CD alternatives such as liquid CDs, bump-up CDs, and step-up CDs. Here with more is Greg McBride, senior financial analyst at Bankrate.com.
(Cut to a double screen of Kristin Arnold and Senior Financial Analyst for Bankrate.com, Greg McBride)
Kristin: Let's start with liquid CDs. What are they and what did you find?
Greg: With a liquid CD, you're permitted to make withdrawals one or more times during the term of that CD without penalty. Now, to have that flexibility there's a trade-off. You have to settle for a lower rate on the front end. What we found is that maturities shorter than one year, the high-yield savings account was actually the better alternative ... where liquid CDs become more advantageous are on the two year, three year, four year maturities.
Kristin: Can you tell us how bump-up CDs work?
Greg: With the bump-up CDs the investor has the ability to increase their interest rate one or more times during the term of that CD ... and the timing is up to you. So, the key to making this work to your advantage is that make sure that initial rate doesn't involve much of a trade-off ... you have to shop around…and that way you're in the position that after you bump up to a higher return you can actually more than offset that initial trade off on the front end.
Kristin: And step-up CDs?
Greg: With step-up CDs the rates are pre-specified throughout the term of the CD. You know this from the outset, what you're going to be earning at what point throughout the entire life of that CD. It's also the most straightforward in terms of sizing it up against the traditional CD. As with all of these, the liquid, the bump-up, the step-up…terms do vary pretty widely, so you do have to shop around. And they're not universally better or worse than traditional savings accounts and CDs ... so you have to continue to size them up next to one another.
(Cut to one-shot of Kristin on camera)
Tag: Ok, some good alternatives for savers, thanks Greg. For more information on rising rate CDs, visit Bankrate.com. I'm Kristin Arnold.