Thursday, July 4, 2024

Promotional Certificate of Deposit (CD) Rate: What It Is, How It Works

 What Is a Promotional Certificate of Deposit (CD) Rate

A promotional certificate of deposit (CD) rate offers an attractive opportunity to earn higher returns than a traditional certificate of deposit (CD), which requires higher minimum requirements when opening the new CD. The promotional CD rate is also known as the bonus CD rate. It is a financial product offered by banks and credit unions, available for a limited period to retain and encourage existing clients to deposit more funds and induce new clients. Understanding how promotional CD rates work and how they compare to regular CDs helps you make smarter financial decisions fit for your financial goals. 


Promotional Certificate of Deposit (CD) Rate: What It Is, How It Works
Promotional CDs

Key Takeaways:

  • Promotional CDs are time-sensitive, and provide a compelling opportunity to secure a promised rate of returns on your savings which is higher than a regular CD for the same terms.
  • Promotional CDs cease promotional rates as their maturity ends and renew into a standard CD at competitive rates.
  • Choose financially well-reputed and federally insured banks or credit unions to open promotional CD accounts for safety purposes.
  • The FDIC or NCUA protects CD time deposits in case of bank failure within the insurance coverage of $250,000, per depositor, per institution as per federal rules.


Following a demonstration of the key features of promotional CDs would help take potential rates on your savings.


Higher Interest Rates: The notable feature of a promotional CD is its higher interest rates than a standard CD. 

Minimum Deposit Requirements: Every institution varies the minimum deposit requirement. Promotional CDs generally require more of this requirement to unlock the higher rate of interest.

Limited-Time Offers at Unique Terms: Promotional CDs require quick action to purchase them as they are available for a short period at unique terms such as 7 months, 11 months, or 15 months.

    

How Do Promotional CD Rates Work?

Like regular CDs, promotional CDs require you to deposit funds for a specific period, during this term you earn a guaranteed promotional CD rate that is often significantly higher and boost your savings. Banks offer them to preserve the existing clients and attract new ones. [1] [2]. The Federal Deposit Insurance Corp. (FDIC) protects your money up to $250,000 per depositor, per bank. [3].


Promotional CDs are a straightforward and easy investment option. Without market volatility, they provide you a stable predictable rate of returns [4]. You can't withdraw funds til the terms end, otherwise, you will face early withdrawal penalties. 


It is advisable to reach out to your bank to confirm the current withdrawal policies to avoid any financial inconveniences. After providing you a limited-time rate boost, the life of a promotional CD ends at its maturity and requires renewal or cash out. The promotional CD rate converts into a standard CD rate, but many reputable banks incentivize to retain the funds and provide enhanced rates at rollover to the savers.[5].


For instance, you come across a bank offering a promotional CD with a 4% annual percentage yield (APY) for the 12-month term. On the other hand, the same institution has a 12-month regular CD offer at a 3.5% annual percentage yield. Finally, you decided to fund the promotional CD account with $10,000. 


  • Interest Calculation: You will earn $400 as interest revenue on $10,000, deposits in promotional CDs for this term.
  • Comparasion: If you had chosen the regular CDs, you would have earned $350, as interest returns for the same term, and amounts.

This example demonstrates the positive difference of $50, as an increase over investing funds in promotional CDs. However, it is a short-term gain and requires careful consideration at the time of CD renewals.


Why Do Banks Offer Promotional CDs?

Banks and credit unions always search for increased deposits. They use promotional CDs as a marketing tool to draw in new clients. They hope to inspire savers or investors to invest in promotional CDs, who might otherwise choose investment opportunities available in different banks. Financial institutions (banks, credit unions) provide promotional bonuses to their customers which benefits both of them. Once clients are on board, banks line up to set up long-term positive relationships with them. It would build and exchange other banking products and services.

    Promotional Bonuses and Rewards:

Banks provide rewards to compete with the other banks and grasp customer's attention. Bonuses and rewards have a special attraction for anyone who wants something extra while securing the main one. Achieving bonuses requires the fulfillment of specific criteria such as a specific amount of deposits in specific types of accounts, and meeting bonus requirements.


The reward may be in the form of financial compensation, such as a bank may offer $500 as a reward, for opening a credit card. It may improve the customer base and increase credit ratings. For example, a bank may offer existing clients a financial reward of $500 for opening a special CD account like jumbo CDs or purchasing other banking products and services. 


How to Find the Best Promotional CD Rate

Following the best financial institutions with an act-upon strategic investment plan ensures financial success. You may search for promotional rates or build CD laddering to grow your savings. You need to consider a variety of CDs and terms that meet your financial needs.  Here is a list of banks and credit unions that offer the best promotional CD rates.

  • Bank of America
  • BMO 
  • Navy Federal Credit Union 
  • U.S. Bank 
  • Wells Fargo 
You can also purchase a bump-up CD and step-up CD that boosts your rates during the maturity period. 



Frequently Asked Questions (FAQs)

    ★What happens when a CD Gets Maturity?

The maturity for a certificate of deposit (CD) is the date when you get withdrawal access to your deposits without any financial penalties. When a CD matures, you need to decide prior to the maturity, whether to reinvest in a new CD or roll over into the same at the same terms. If You do not instruct the bank clearly, many banks automatically roll over the CD funds into a new CD having almost the same terms and conditions as the previous one.


    ★Are Promotional CDs Worth It?

Promotional CDs are referred to as bonus or special CDs that provide promotional rates for a short period of time. They limit your rate of returns for a limited period with the requirement of maximum funds opening it. After the maturity dates, they roll over into a regular CD. So, they are good only for a limited term.


    ★Is a Promotional CD an Investment Option?

Promotional CDs are similar to traditional CDs with some exceptions. They are decent investment opportunities, federally secured, and provide a guaranteed rate of returns at the CD issuer's promise.



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