Flex CDs: The Pros and Cons

Are you annoyed with the measly 0.5% rate on your bank savings account? Know you could get a higher rate with a certificate of deposit, or CD, but don’t want to lock your cash up for nine months or two years given so much uncertainty in the market? And who’s to say rates won’t go up in the near-term? That 1.5% you may lock in now with a 12-month CD may not be so attractive in six months.

Banks are hearing you.

Desperate to please customers and boost their own deposits, financial institutions are increasingly placing their so-called flexible or “flex” CDs at the forefront of their financial product offerings.

Flex CDs "have always been around, but the appeal may be more nowadays given the economic climate,” says Tracey Mills of the Consumer Bankers’ Association.

Traditionally, CDs offer savers a locked interest rate in exchange for agreeing to keep their deposit in the account for a fixed term, anywhere from a few months to several years. Try to make a move before the maturity date and you’ll get penalized. But if you’re like me and you covet liquidity in these shaky times, flex CDs hit the sweet spot.

Two Ways to Flex
There are mainly two categories.

First, “bump up” CDs let you earn a higher interest rate if rates rise during the original term of your contract. For example, at Fulton Bank (Stock Quote: FULT), which has branches in Pennsylvania, New Jersey, Maryland, Virginia and Delaware, you can open a 24-month “bump up” CD with a 2.18% rate. The bank will let you adjust your rate higher only once if interest rates on that product do go up before your CD’s maturity date. The minimum is $500 to open the account. Customers enrolled in Fulton bank’s “Relationship Banking” checking account with at least a $5,000 balance can qualify for an even higher flex rate of 2.42% on that particular CD. For a do-it-yourself “bump up,” build a CD ladder out of a few CDs of your choice with different maturities, say three-, six- and nine-months to bank on longer term interest rates with flexibility.