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Understanding Promotional Rate CDs

When exploring options for a certificate of deposit (CD), you might come across promotional CDs that offer special rates. These promotional rate CDs can provide higher interest rates than traditional CDs, but they are often available for a limited time. In this article, we will explain what a promotional rate CD is, how it works, and whether it is worth considering.

What Is a Promotional Rate CD?

Promotional rate CDs offer an annual percentage yield (APY) that is higher than usual for specific term lengths. These deals are often time-sensitive, requiring you to lock in the rates before they expire. Banks and credit unions use promotional CDs to attract new customers or encourage existing ones to open CD accounts with particular maturity dates.

How Does a Promotional CD Work?

Promotional CDs function similarly to regular CDs. You deposit a sum of money and earn a fixed interest rate for the term of the CD. Upon maturity, you can withdraw your principal and interest earnings or roll the CD into a new term. Here are some common features of promotional CDs:

• Higher rates for shorter terms: Promotional CDs may offer high APYs for short terms, often less than a year.
• Unconventional CD terms: Terms may be for unusual durations, such as seven, ten, eleven, or twenty-five months.
• Varying deposit requirements: Minimum deposits can vary, with some promotional CDs requiring no minimum deposit, while others may require $250, $500, or $1,000.
• Automatic renewals: Promotional CDs may automatically renew, but the initial rate is not guaranteed for subsequent terms. The bank or credit union should notify you before renewal so you can decide whether to withdraw funds or roll over to a new CD.

Are Promotional Rate CDs Worth It?

Using a short-term promotional rate CD can be a smart way to lock in a high APY without committing to a long-term CD. For example, if you plan to make a significant purchase in six months, a promotional CD could help you earn a higher return on your savings until then. However, be mindful of the maturity date to avoid automatic renewals at potentially lower rates.

It’s also important to note that promotional rate CDs are not ideal for emergency savings, as early withdrawals can incur penalties, making the promotional rate less beneficial.

Alternatives to Promotional Rate CDs

If you’re looking to earn a higher APY on your savings, consider these alternatives:

• Traditional CD: Offers guaranteed returns with more term length options, though interest rates may be lower than promotional or high-yield CDs.
• High-yield CD: These CDs can offer higher APYs than promotional CDs, so it’s worth comparing both options.
• High-yield savings account: Some online banks offer savings accounts with APYs comparable to CD rates, providing flexibility to withdraw money without penalties.
• Tiered savings accounts: These accounts offer higher APYs for larger balances, with the flexibility to make ongoing deposits and withdrawals without penalties.

The Bottom Line

Promotional CDs are one of many deposit accounts that can offer higher yields than traditional checking or savings accounts. Comparing rates across different types of CDs and savings accounts can help you find the best place to grow your savings. Start by checking with your current bank or credit union, then expand your search online for other high-return savings options.

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