A promotional certificate of deposit (CD) rate is a higher-than-standard rate that banks offer customers who can meet certain requirements. A promotional rate may be offered on a CD when you make a larger deposit, choose a longer term, or have another type of relationship with the bank. Banks may also create promotional specials to attract new customers.
If you're looking to land the best rate out there, a promotional or bonus CD rate may grab your attention. Watch out for fine print that could sour the deal.
Definition and Example of Promotional (Bonus) CD Rate
A promotional (bonus) CD rate is a higher rate offered on specific CDs, often with certain terms the borrower must meet. The higher rate may be offered when you make a higher deposit, purchase a CD with a longer term, or you're already a bank customer. Some bonus CD rates are only available for a limited amount of time, so you'll need to evaluate quickly if you want to take advantage of the promotion.
- Alternate name: Bonus rate
Say, for example, a bank's regular rate for a six-month CD is 1.00% APY. If the bank offers an additional 0.25% APY to customers with an active checking account, this would be a bonus CD rate.
How Does a Promotional (Bonus) CD Rate Work?
Banks may have multiple requirements to qualify for the promotional CD rate. At a minimum, you'll have to leave your money deposited for a fixed amount of time just like most other CDs.
Withdrawing your deposit before the end of the CD term may result in an early withdrawal penalty and cost you some or all of your promotional-rate earnings.
Qualification criteria for the special rate will vary by bank and product. For instance, you may need to make a minimum deposit. Some banks require you to have another account with them, like a checking account, to invest in a promotional CD.
Generally, the rate is fixed for the CD term (the amount of time you've agreed to leave your money deposited). At the end of the term, you can withdraw your deposit and interest earnings without paying a penalty. Taking advantage of a bonus CD rate allows you to earn more interest in the same amount of time compared to the regular CD rate.
For example, a bank's regular CD rate might be 0.25% APY on a 12-month $10,000 CD. You'd earn $25 in interest in one year. Let's say the bank offers a promotional CD rate of 1.25% APY, on the same term, for customers with an existing checking account. Your interest earnings would increase to $125.
In some cases, your CD may automatically rollover, or "reinvest," for another term—but at the current market rate rather than the promotional rate you previously had. You should let the bank know ahead of time if you don't want your CD to rollover.
Banks may offer more promotions on CDs during the late stages of the economic cycle, when bank deposits tend to decline.
Pros and Cons of a Promotional (Bonus) CD Rate
Rate is usually fixed for the CD term
Ability to earn higher interest on deposits
Stricter qualification criteria
More common with non-standard terms
- Rate is usually fixed for the CD term: Once you make your deposit and choose your term, the promotional (bonus) CD rate usually is fixed for the entire term. With a fixed rate, you can predict exactly how much interest you'll earn by the time your CD matures.
- Ability to earn more interest: Investing in a CD with a promotional rate allows you to earn more interest than you'd earn with a regular CD or savings account, even over the same period of time.
- Stricter qualification criteria: CDs with a promotional rate commonly have more requirements, such as a higher minimum deposit, longer term, or existing banking relationship.
- Non-standard term lengths are common: While traditional CDs have terms such as six months, 12 months, one year, or two years, promotional CD rates have terms such as 17, 37, and 57 months.
How To Get a Promotional (Bonus) CD Rate
Promotional (bonus) CD rates are fairly rare, so you may only find one if you're specifically looking or your bank sends you an offer.
- Compare rates: If you have an offer you're considering, shop around to make sure you're getting a good deal. Current high-yield and national-average CDs rates are good benchmarks to compare against.
- Check the criteria: Read through the promo rate’s criteria carefully to be sure you qualify. Make sure you understand how much you need to deposit and the type of bank account you need to have, if any.
- Apply and fund your CD: Once you've decided you're ready to make the investment, you may be able to apply online and make your deposit. Otherwise, you can call or visit your bank in person to open the CD.
- A promotional (bonus) CD rate is a higher, special rate offered on CDs with specific term lengths.
- CDs with a promotional rate may require a higher minimum deposit or existing bank relationship.
- Unless you contact your merchant beforehand, the CD may automatically rollover into a regular rate CD for the same term.