3 Little-Known CD Perks to Watch For

Certificates of deposit (CDs) aren't as flashy as some other types of bank accounts. They lock your money away for a certain period of time, known as the CD term, so they don't have things like debit card access or check-writing capabilities.

Their primary draw is their annual percentage yield (APY). But there are some special types of CDs that set themselves apart with extra perks. Here are three to watch for.

1. Rate increases

CDs typically lock in your rate for the full length of your CD term, which could be years depending on the account you choose. But some CDs will increase your APY if the rates on new CDs are higher than what you're getting.

These usually come in two flavors: step-up and bump-up CDs. Step-up CDs have a predetermined rate increase schedule. For example, they might automatically increase your rates every year if new rates are higher than the rate you locked in when you open the account. Bump-up CDs enable you to request rate increases whenever you want during the term, though there are usually rules about how often you can do this.

If you're considering either of these types of CDs, do some investigating into the terms before you open one. Learn whether the bank will automatically increase your rate or if you must request it and how to request an increase, if necessary.

2. No-penalty withdrawals

Typically, you pay a penalty for withdrawing CD funds before the term ends. Exact penalties depend on the CD you choose and how early your withdrawal is. Usually, it's equal to several months of lost interest.

Though rare, there are no-penalty CDs that permit you to withdraw your cash at any time without paying this penalty. However, these CDs may have lower interest rates than traditional CDs because there's a greater chance that you might withdraw your cash early. Also, you typically have to withdraw all your funds from the CD at once. You can't make a partial withdrawal.

3. Early access to interest payments

Banks typically reinvest the interest you earn each month on your CD back into that CD, so the next month, you earn interest on your interest. This is a great way to maximize your profits, but it's not right for everyone.

If you want to reap some of the reward of your CD now, you might prefer a CD that enables you to transfer your monthly interest payments to a savings or checking account as you earn them. Your principal will still remain locked up until the CD term ends.

If you're not sure whether this is an option or you have other questions about a bank's CD offerings, it's best to reach out to the bank directly. Get clarity before you open your account, so you don't have to worry about penalties.

And if you're unsure whether a CD is a good fit for you, consider a high-yield savings account instead. These accounts also offer a high interest rate -- as much as 5.00% (or even higher) right now -- but that rate is variable and can change over time. The upside is that you can access your cash whenever you need to, which is a lot less restrictive than CDs.