What is a Callable, Step-Up or Bonus Rate CD?
Callable, Step-Up CDs are Certificates of Deposit whose interest rates increase over the life of the CD on a predetermined schedule. Step-Up CDs are callable, multi-step CDs in which the interest rate increases over the life of the CD to a higher ending rate of interest. Step-Up CDs have a period of time for which they are non-callable. At the end of the non-callable period, usually one or two years from the issue date, the CDs may be called, or redeemed, for the amount of the original deposit. If the CDs are not called, or cut short, the issuer must pay the new higher interest rate for the next non-call period. The CDs are usually callable on each subsequent interest payment date. Like a fixed rate callable CD, it is difficult to project when a CD might be called. Business sense would usually indicate that if interest rates rise, a Step-Up CD will less likely be called. Only the issuer and not the depositor may call a CD. Issuers normally announce the exercise of their call privilege
