Promotional CD Rates: What They Are, How They Work

Flamingo Images/ Shutterstock

Promotional certificates of deposit (CDs) are CDs offered by banks and credit unions that often pay a higher yield than standard CDs, especially at the same bank. They often have irregular term lengths.

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 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 with this special (higher) rate. These promotions can be a good deal and they are often only available for a limited time.

How promotional CD rates work

With a fixed-rate promotional CD, you’ll earn the promotional APY for the term of the CD. But when your CD matures, it will likely renew at a standard rate, which is probably going to be lower than the promotional rate that initially enticed you to open the CD. Promotional CDs also typically renew for a different, but similar, term. For example, a promotional 7-month CD might renew for a 6-month CD.

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

When considering a promotional CD, browse the best 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.

Here are a few promotional CDs from banks we review:

Features of a promotional CD

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

• Irregular term lengths: Banks that offer promotional CDs often assign them irregular terms, such as seven months, 11 months or 15 months, as opposed to common terms such as six months, one-year, three years and five years.
• The promotional term and APY only apply once: If you choose to roll over an 11-month promotional CD when it renews, for instance, the bank may renew it as a one-year CD, not an 11-month CD. And the one-year CD may earn a lower rate than your initial promotional CD did. Stay on top of your CD maturity dates and always read the fine print before allowing a CD to automatically renew.

When to open a promotional CD

Consider opening a promotional CD if the term works for your savings goals and timeline. Here’s what you should make sure of before you open one:

• Competitive APY: Check that it’s a good deal by comparing the APY with the APYs for CDs with similar terms. You can use a CD calculator to see the difference between what you’ll earn with a promotional CD and a regular CD. Just because a bank or credit union calls a CD rate special or promotional doesn’t mean there aren’t better yields available elsewhere.
• Your eligibility: Before you decide to open a promotional CD, check whether you’re eligible first. Some financial institutions require you to be a new customer in order to open a promotional CD.
• Early withdrawal penalty: 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 more liquid account, like a high-yield savings account.

What is the difference between a CD and a promo CD

Generally, a regular CD and a promotional CD have the same characteristics. They both:

• Have a fixed yield (typically)
• Carry early withdrawal penalties
• Automatically renew at maturity

The main differences are that promotional CDs have abnormal term lengths – such as seven months instead of six months. 

Bottom line

A promotional CD may offer a 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.