How promotional (bonus) CD rates work

Financial institutions that offer certificates of deposit (CDs) may choose to offer promotional CD rates, or special CD rates. These often pay more than standard CD rates. Such offers could be worth your while, depending on the yield and length of the term.

Promotional CDs may or may not offer the best rates on the market, though, so it’s important to do research before deciding whether a promotional CD is the best option for you.

Here’s everything you should know about promotional CDs before opening one.

What is a promotional CD?

A promotional CD, sometimes referred to as a bonus or special CD, is a certificate of deposit with a higher-than-normal annual percentage yield (APY).

Banks and credit unions may offer a promotional CD to attract new customers. These promotions can be a good deal, but they may only be available for a limited time.

When considering a promotional CD, browse top CD rates to see how the promotional CD compares to competitive market rates. The promotional CD probably won’t renew at this special rate, so make sure you re-evaluate the CD market when the CD is about to mature.

Features of a promotional CD

Promotional CDs tend to have a number of things in common:

• Irregular term lengths: Common terms offered on CDs include three months, six months, nine months, one-year, 18 months, two years, three years, four years and five years. Banks that offer promotional CDs often assign them irregular terms, such as seven months, 11 months or 15 months.
• Rate only applies to initial term: If you choose to roll over an 11-month promotional CD, for instance, the bank may renew it as a one-year CD that earns whatever its going rate is one-year CDs. Always read the fine print before allowing a CD to automatically renew.
• Higher minimum deposit: Banks often require larger minimum deposit amounts on their promotional CDs than on their standard CDs.

How promotional CD rates work

As long as the rate is competitive, promotional CDs may be a win-win situation for you and the bank. You’ll typically earn the APY for the term of the CD, but the CD likely will renew at a standard rate that will probably be lower (assuming standard rates don’t increase upon maturity). It might also automatically renew for a different, but similar, term.

Some promotional CD rates may require a higher minimum deposit than a standard CD to earn it.

When to open a promotional CD

In deciding whether to open a promotional CD, first check whether you’re eligible for the CD. For instance, some financial institutions require you to be a new customer in order to open a promotional CD.

Also make sure it’s a good deal by comparing the APY with the going APYs for CDs with similar terms. You can calculate the difference between a promotional CD and a regular CD to see the difference in interest earnings.

Make sure the minimum deposit requirement is in line with the amount you’re planning to invest in the CD.

When a promotional CD doesn’t make sense

You shouldn’t open a promotional CD without comparing rates with CDs at other banks. Just because a bank or credit union calls a CD rate special or promotional doesn’t mean there aren’t better yields available elsewhere.

No matter how good the promotional rate is, you won’t want to incur an early withdrawal penalty, so choose a CD term that’s right for you. Money you might need at a moment’s notice for emergencies is better off in a liquid savings account.

The bank or credit union may not make the rate available to everyone, either. The financial institution may only offer the bonus rate to attract new deposits, so whether you’re a new customer or not can be a factor, too.

Bottom line

A promotional CD may offer highly competitive APY and term length that makes it a good fit for your savings goals. Before opening a promotional CD, however, compare rates to make sure there aren’t actually better deals on other CDs with similar terms.

— Bankrate senior writer Karen Bennett provided an updated version of this story.