It’s a no-brainer: If rates are stable or dropping, CDs are a good deal – not
the most lucrative way to invest your money, but safe and reliable. If rates
are rising, however, why would you want to get locked into a long-term CD?
At least three banks in Rhode Island are offering an answer.
Last month, Bank of America launched its new OptUp CD, a 30-month certificate of deposit that allows customers to “catch the rising rate,” as the brochures put it. More quietly, last week, Bank Rhode Island rolled out an 18-month “bump-up” CD. And since spring, Citizens Bank has been offering a 15-month CD with a one-time rate boost option.
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The Bank of America product, which is available at Fleet branches, allows customers to sign up for an OptUp CD at the current 36-month rate (2.84 annual percentage yield as of Sept. 28, or 3.10 APY for premier customers), then upgrade to a higher rate, if available, anytime in their first six months. The upgrade can only be done once, but there are no fees attached, and customers don’t have to extend the terms of their CDs.
The BankRI product, available since last Monday, allows one interest-rate upgrade anytime during the 18-month term of the CD, also without penalties. The bank’s starting rate was higher than others, too: 2.50 APY, compared to Bank of America’s 2.00.
Asked whether BankRI had taken its cue from the Charlotte, N.C., giant, James V. DeRentis, executive vice president for retail banking and marketing, said both banks’ products reflect the trends in the global consumer deposit market.
“Banks want to be competitive with consumers,” DeRentis said. “Money that had flowed into banks because of the stock market volatility … is starting to seek higher returns, so we have to offer a product that consumers think is competitive.
“This is the first time in quite some time that we’re in a rising rate environment,” DeRentis added, “and this is a timely product. If you look at the marketplace, you’ll see every bank is doing something to provide customers with rate protection.”
CDs are popular as alternatives to regular savings or money market accounts, which pay lower interest rates. They are also protected by FDIC insurance. As of June 30, just over one-quarter of BankRI’s total deposits were in CDs.
Not everyone is promoting CDs right now, however, even among the largest banks. Sovereign Bank had no CD promotions as of last week, though a spokesman said the bank would be raising its CD rates.
The Washington Trust Company had not launched anything akin to the “OptUp”
CD, but it did have a special on five-year CDs, for 4.25 APY (half a point higher
than Bank of America’s premium rate, 3.75 APY). It also had a lower minimum
deposit than its competitors, $500 instead of $1,000.
