Understanding Variable Rate CDs

Variable-Rate CDs are designed to allow you to earn high CD rates during the term of your certificate of deposit. But, along with this advantage, variable-rate CDs also have their disadvantages. This article is designed to help with understanding variable-rate CDs.

Unlike, variable-rate CDs, traditional CDs offer fixed CD interest rates during the term of the certificate of deposit.  Therefore, if a bank CD has a interest rate of 3% with a 24 month term, the CD interest rate will be fixed at 3% for the 24 month CD term.

While it is great to be able to lock in fixed CD interest rates, there is also a risk that bank CD interest rates will rise during the term and your bank certificate of deposit will be earning less interest than you otherwise could have earned.  Being locked into an interest rate can be a positive and a negative.

If you feel that CD interest rates will go up during the term of your certificate of deposit, a variable-rate CD can help you to minimize this risk.

As the name suggests, the CD interest rate for a variable-rate CD can change during the term of the bank CD.  If CD interest rates go up, the variable CD interest rate will also go up.  However, if CD interest rates go down, the variable CD interest rate will also go down.

Variable-CD interest rates are often linked to U.S. Treasury Note rates. However, every bank structures their variable CDs differenty.  Therefore you will have to check the fine print of the bank cd website that you are interested in. 

If you would like to check out great certificate of deposit interest rates, check out High CD Rates.  Click that link to see the current highest CD rates.