How CDs Function

How CDs Function - [edit] Variable-rate CDsUnlike...

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Bump-up CDsA Bump Up CD allows the account holder the option to increase the interest rate once during the term of the CD. Upon request, the bank will bump up the interest rate on the certificate of deposit to a higher rate being offered by the issuing bank on that CD (or a comparable term CD). The rate change does not change the original maturity date of the CD. [edit] Liquid CDsThis type of CD is generally a fixed rate certificate of deposit, which allows you to withdraw a portion of the original deposit during the term without paying a penalty. There will be some limits on when you can take the money out, the amount that can be withdrawn and how many separate withdrawals you can make from the CD. [edit] Step-up CD or step-down CDsThese can also be called a flex CD and can be confused with a Bump Up CD. Certificates of deposit with a step up or down feature have a fixed interest rate for a period of time, usually one year and then the interest rate automatically rises up to a predetermined rate or is lowered to a predetermined rate.
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Unformatted text preview: [edit] Variable-rate CDsUnlike traditional CDs that pay a fixed rate of interest, a variable rate CD or index based CD is tied to the outcome of a market index. The interest you earn at maturity is based on the percentage gain (or loss) to the final Index value. These certificates of deposit can be tied to a bond or stock index or a reference rate like the Treasury bills, Prime Rate or the Consumer Price Index. [edit] Add-on CDsThese are fixed or variable rate CDs to which you can make additional deposits. There can be restrictions, such as a minimum deposit that can be made to the account. [edit] Zero-coupon CDThese certificates of deposit are issued at a substantial discount from the face amount of the CD. Typically the maturity terms are much longer, 15 to 20 years, which results in the discounted price. Zero coupon CDs do not pay interest until the maturity date....
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This note was uploaded on 02/29/2012 for the course ECON 4223 taught by Professor Johnp.willen during the Spring '12 term at UCLA.

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