*APY - The Annual Percentage Yield (APY) represents the interest earned through each eligible call date based on simple interest calculations and an investment price of 100

At the time this structure was issued, a 15-year Callable Fixed-Rate CD carried a coupon of approximately 6.00%. As you can see, the Step-Up investor chooses to sacrifice some coupon
income in the early years in exchange for the potential to receive a much higher rate in the later years, if the CD is not called. In this example, the Step-Up CD would have to remain outstanding for at least nine years before its yield would exceed that of the Fixed-Rate Callable CD. In fact, the
investor's assessment of the likelihood that the CD will remain outstanding until at least some of the higher coupons are received is the pivotal factor in deciding between a Step-Up and Fixed-Rate CD.

Keep in mind that the high future coupons will be received only if the CD is not called. Furthermore, each time the coupon rate steps up, the "break-even rate" at which the issuer would have to be able to issue a new CD also increases, making a call more likely. For this reason, the investor should hold a view that interest rates are likely to increase during the life of the investment. If rates do not rise, the CD will likely be called before enough high coupons are received to compensate for lower initial coupons. Should that happen, the investor might have been better off with a Fixed-Rate Callable CD.

It is worth noting, however, that even if the Step-Up is called early on, the investor's yield-to-call will most likely be considerably higher than the yield available on other short-term fixed-rate investments of similar quality at the time of purchase.