Have a CD Maturing Soon? How Letting It Roll Over Could Really Cost You

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What Happens to Maturing CD Funds?

Every certificate of deposit (CD) has its own maturity date based on the term of the CD and the date it was established. The maturity date is when you can freely withdraw your money—including all the interest you’ve earned—without incurring an early withdrawal penalty.

A few weeks before that date rolls around, the bank or credit union where you hold the CD will contact you, usually by letter but perhaps by email or secure message, to remind you that your term is ending and provide you with instructions on how to let them know what you want to be done with the funds. They may provide a reply form and envelope, and/or instructions for how to make your wishes known through online banking.

With most institutions, there are usually four options:

1. Transfer the CD funds into another account at that institution
2. Transfer the funds to an account at another bank
3. Receive the funds by paper check in the mail
4. Let the CD “roll over” into a new CD at that institution

To accomplish the first three, you’ll need to submit your instructions to the institution by the deadline they stipulate. But if you do nothing, or fail to act in time, you’ll get Door No. 4. And you may not like the result.

Why Letting CDs Roll Over Is Usually a Bad Idea

If your aim is to keep saving your CD balance, you’re forgiven for thinking it’s a good idea to simply move it right into another CD at the same bank or credit union. After all, that will avoid any temptation to spend it before you can sock it away again.

But here’s the rub—and it’s a big one: Automatic CD rollovers give you zero choice on the certificate your funds will be moved into. The bank or credit union will simply transfer the funds into whichever of its standard-menu CDs most closely matches the duration of your original CD. And that rate may be very unattractive compared to today’s best CD rates.

That may not seem like a big deal, but it can cost you big time. That’s because banks and credit unions always roll your proceeds into a standard CD, never a promotional offer with a more attractive rate.

Take for example USAlliance Financial’s 6-month CD that came out last October, which was paying 5.75% APY. If you opened that CD last fall, it would be maturing this April. But USAlliance’s current 6-month CD rate, which is what you’d be rolled into, has fallen to 4.25% APY. And it could go even lower by April.

In contrast, our ranking of the best 6-month CDs includes 15 options that pay 5.41% to 5.75% APY. So moving your money to one of these would net you much higher earnings than the USAlliance rollover certificate. You could also choose to move your money to an entirely different CD term, which offers the following top rates today.

When you let a CD roll over automatically, you entirely give up your opportunity to shop around for the best rates at that time, breaking the No. 1 rule for smart CD investing. Adding salt to the wound, your funds will now be locked in for some new duration at an inferior rate—potentially far inferior—with no way to exit unless you agree to pay the early withdrawal penalty.

The biggest problem is that rolling over by mistake means you’ve forfeited your chance to make a different decision with your money, such as choosing a longer- or shorter-duration CD this time around, or moving the funds into a high-yield savings account.

Since everyone’s financial situation evolves over time, and because interest rates are also always changing, it’s smart to choose a new CD carefully, with current personal factors and today’s rates firmly in mind.

The Longer Your Existing CD Term, the Worse Your Potential Pain

If you have a 1-year CD rolling over into another 1-year CD, that may not be the end of the world. Perhaps you don’t need the money during the next year. However, the pain of automatic rollovers is multiplied with longer-duration CDs.

Take for example an existing 3-year certificate. Let’s say the maturity date is arriving and you’ll finally regain access to those funds. But if you accidentally let the certificate balance roll over, it will move into another 3-year CD, meaning you’ve essentially locked yourself out of using that money for six years.

The hit would be even worse with a 4-year or 5-year certificate, while it’d be less with a 3-month or 6-month CD. But this fact remains: You may want to access your funds much sooner than a second CD term will allow. That’s why the smartest move is to consciously decide for yourself how you want to deploy your maturing CD funds, rather than have the decision made for you.

Smart Money Moves to Make Instead

Now that you’re hopefully convinced to never let a CD just automatically roll over without carefully thinking it through, here are three ways to set yourself up as a savvy CD saver:

1. As soon as you open a new CD, set a reminder on your calendar a month or two before its maturity date. Not only will this give you some time to decide what you’d prefer to do with the money, but it will also help you notice if you haven’t received notification from the bank on how to submit your instructions.
2. When you get that tickler notice, start researching what the top current CDs are paying, in addition to what you can earn with the best high-yield savings accounts or best money market accounts. This can help lead you to a decision on whether to keep the money in a CD (and if so, for how long a term), or to move it to a liquid account with a high yield but more flexible access.
3. Even if you can’t make a final decision on what to do with the funds before your CD’s maturity, instruct the bank to transfer the CD balance into a savings account at that institution or another one where you have an account. The funds can sit there safely while you decide what to do next, avoiding the risk that they get committed to a new CD term.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.