Variable-Rate CDs

Variable-rate CDs are a retirement savings investment product that offers a fixed term of investment and a fluctuating interest rate. They’re often less punitive than traditional CDs when it comes to early withdrawals. They can be a sound addition to your retirement savings portfolio.

  • Written by
    Lindsey Crossmier

    Lindsey Crossmier

    Financial Writer

    Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.

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  • Edited By
    Savannah Pittle
    Savannah Pittle, senior financial editor for RetireGuide

    Savannah Pittle

    Senior Financial Editor

    Savannah Pittle is a professional writer and content editor with over 16 years of professional experience across multiple industries. She has ghostwritten for entrepreneurs and industry leaders and been published in mediums such as The Huffington Post, Southern Living and Interior Appeal Magazine.

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  • Financially Reviewed By
    Toby Walters, CFA®
    Toby Walters, CFA

    Toby Walters, CFA®

    Chartered Financial Analyst and Paraplanner

    Toby Walters, CFA®, has over 25 years of financial research experience. With a knowledge and understanding of researching and analyzing financial data, he has developed a unique and experienced viewpoint on money matters. He has been a chartered financial analyst since 2003, and most recently a portfolio analyst and paraplanner.

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  • Published: April 22, 2023
  • Updated: May 17, 2023
  • 5 min read time
  • This page features 3 Cited Research Articles
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A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

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APA Crossmier, L. (2023, May 17). Variable-Rate CDs. Retrieved June 19, 2024, from

MLA Crossmier, Lindsey. "Variable-Rate CDs.", 17 May 2023,

Chicago Crossmier, Lindsey. "Variable-Rate CDs." Last modified May 17, 2023.

Key Takeaways
  • Variable-rate CDs are certificates of deposit that pay a fluctuating interest rate over the life of the investment.
  • Although they’re fixed-term investments, they usually offer a lower penalty for early withdrawals than traditional CDs.
  • If interest rates rise during your term, variable-rate CDs offer the potential for higher returns than traditional CDs.
  • Not all banks and credit unions offer variable-rate CDs, and the details of terms and interest rates vary by bank.

What Are Variable-Rate CDs?

Variable-rate certificates of deposit (CDs) are low-risk, interest-bearing investment products with fixed maturity terms. But as its name suggests, the interest rate doesn’t necessarily remain stable over the life of the investment. If interest rates increase during the term of your deposit, you can earn a higher rate of return.

CDs are safe and reliable investments for retirees looking to protect their principal. However, when locked into a CD, your money doesn’t have the same opportunity to grow as it might with other investment products. Variable-rate CDs offer you a chance to improve your annual percentage yield (APY) if interest rates rise over the term of your CD. But beware that interest rates can also decline.

The exact term lengths, APYs and minimum deposits required for your investment depend on who issues the CD. Variable-rate CDs can be complex and not all banks and credit unions offer them. Research options that best suit your investment needs.

How Variable-Rate CDs Work

A regular CD returns the same interest rate throughout the entire term. With a variable-rate CD, the interest rate can go up or down, depending on how the CD’s rate is structured. If interest rates rise, you earn more money. If they decline, you earn less.

Variable-rate CDs usually offer a range of interest rates over one rate. For instance, if your variable-rate CD has an interest range of 1.5% to 3%, your CD can earn anywhere between those rates, depending on how interest rates act during your term.

But not all variable-rate CDs work the same way. Sometimes the interest range represents the floor and ceiling of your earnings. In the previous example, that would mean you could not earn less than 1.5% or more than 3% during the term of your CD. Other variable-rate CDs might come with pre-set schedules, in which interest would increase or decrease at set points along the way to maturity. The details of each variable-rate CD depend on the financial institution and its portfolio of investment products.

Factors That Impact Interest Rates

Variable-rate CDs can be an attractive investment option when interest rates are low, because they have the potential to rise during your investment. While a regular CD would be locked into the same lower interest rate, the interest on a variable-rate CD could climb. Conversely, if interest rates are already high at the time of purchase, they could fall during your term, which means a variable-rate CD might not be the best choice.

Interest rates can rise or fall based on one or more of these factors:
  • The Consumer Price Index (CPI), a measure of the average prices changes of everyday goods over time.
  • The performance of market portfolios like NASDAQ or the S&P 500.
  • The prime rate, which is the lowest rate at which you can borrow money from a bank or credit union. The prime rate usually acts as a base rate that can have a higher percentage tacked on.
  • Treasury bill rates, the interest paid on U.S. Treasury bills.

Pros and Cons of Variable-Rate CDs

Like all investment products, variable CD rates have advantages and disadvantages.

  • Variable-rate CDs offer more flexibility than traditional CDs because they often come with low or even no penalties for early withdrawal.
  • The low-risk nature of CDs means you can’t lose your principal up to the FDIC-insured maximum of $250,000.
  • Instead of being locked into a lower interest rate for the full term of your CD, variable-rate CDs offer the potential to grow your retirement savings as interest rates increase.
  • They’re a safe way to add diversity to your retirement savings portfolio.
  • Variable-rate CDs can be riskier than traditional CDs because interest rates can drop as well as rise. If interest rates fall during your term, you’ll earn less with a variable-rate CD than you would with a traditional CD.
  • Although early withdrawal penalties may be lower with variable-rate CDs, they can still affect your return on investment.
  • Caps on interest rates can limit your potential for higher returns.
  • Inflation sometimes increases faster than interest rates, so you don’t make much of a profit on your investment.

How Variable-Rate CDs Can Fit Into Your Retirement Strategy

If you’re looking for a reliable and secure investment that will protect your principal while allowing for the possibility of growth, variable CDs might be right for you. Consult your financial advisor before making any investment purchases.

As with most investment products, there’s no single best choice of a variable-rate CD. Consider the pros and cons and research the terms and rates at your favorite financial institutions before deciding if variable-rate CDs are right for your retirement savings plan.


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Last Modified: May 17, 2023

3 Cited Research Articles

  1. Consumer Financial Protection Bureau. (2017, January 4). The Interest Rate Offered For CDs (Certificates of Deposit) Is Low. Is There Anything I Can Do About That? Retrieved from
  2. U.S. Securities & Exchange Commission. (2008, December 3). High-Yield CDs: Protect Your Money by Checking the Fine Print. Retrieved from
  3. U.S. Securities & Exchange Commission. (n.d.). Variable-Rate CDs. Retrieved from