Step up CD question

[BrianB]

In January we started a 6/12/18/24 month CD ladder at Fidelity. The first CD is coming due soon, and I was looking at options to reinvest.

Fidelity has a 24 month CD thru Wells Fargo that is 2.8%. Total interest on $10k = $560.00 after 24 months.

Further down the list there was a Wells Fargo "Step Up" 24 month CD with the following rates:

End Date	Coupon	Yield to Maturity
07/31/2019	2.500	2.500
01/31/2020	3.000	2.665
07/31/2020	4.250	3.051

I've never bought this kind of CD before so I am not clear on how they work.

Does this mean that if I hold a $10k CD until 7/31/2020 I will receive $610.20 total interest? If so, this seems to be a better choice since we are not planning to need the money for two years. Anything I am missing?

(Edit to insert table - looks much easier to read!)

 

[gwraigty]

I've bought step-up CDs before. I come up with $612.50 for the step-up CD. The kicker in this one is the 4.25 coupon for the last 6 months.

By 01/31/2020 you'd be at $420 with the 24 month CD at 2.8% vs. $400 with the step-up CD. The last 6 months is $140 with the 2.8% vs. $212.50 at 4.25%, a significant difference.

Just make sure it's not callable before that 4.25 coupon kicks in.

 

[audreyh1]

Interesting....

I noticed the Wells Fargo 2.8% 24 month CD, but totally missed the step-up CD with higher rates.

Edited to add: I see njhowie beat me - but I also looked at it and saw the callable dates starting 7/31/2019, which is the end of the 2.5% period. So this could turn into a 2.5% 12 month CD. Still, not a bad rate for 12 months.

 

[njhowie]

That CD is callable on the following dates:

7/31/2019
10/31/2019
1/31/2020
4/30/2020

 

[jetpack]

step up's are always callable. That's part of the point. But, if you're getting it under face value, you might get a better yield at call.

 

[audreyh1]

step up's are always callable. That's part of the point. But, if you're getting it under face value, you might get a better yield at call.

They are looking at a new issue.