Rates on certificates of deposit (CDs) have skyrocketed in recent years. If you’re looking for a safe place to earn solid returns on money in the short to medium term, they can be a great choice. But they aren’t for everyone. And if you’re new to CDs, there’s one mistake that could prove costly. Don’t forget about your CDs — make sure you know exactly when your terms expire.
In fairness, there’s effort involved in managing most savings and investment accounts. If you put cash in a high-yield savings account, you need to watch out for drops in rates. If you’re investing in stocks or ETFs, you’ll need to manage your portfolio. And if you put cash in a CD, you need to pay attention when it reaches the end of its term. Automatic renewals may not give you the best rate.
Pay attention when your CD reaches maturity
When your CD reaches the end of its term, your bank should notify you. You will normally have a grace period of seven to 10 days to decide what you want to do. You might want to leave it where it is, put it into a new account, or do something completely different. If you don’t act, many CDs will automatically roll over into a new term of the same length.
Bear in mind that CD rates can vary dramatically and rollovers won’t necessarily give you the best deal. The average CD APY on a 1-year CD right now is 1.80%, according to the FDIC. In contrast, some top CDs are paying APYs of 5.00% or more. The difficulty is that if it renews at a much lower APY, you might get stuck with that rate. Unless it’s a no-penalty CD, you’d have to either live with the new rate or pay an early withdrawal penalty to withdraw your funds once a new CD term has started.
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SoFi Checking and Savings 
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APY 4.25%
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A few percentage points can make a big difference
It’s all very well talking about hypothetical scenarios, but let’s look at how that might work in practice. Say you put money into a 5-year CD with an APY of 4.00% that compounds monthly. The CD matures and rolls over into a new account that’s paying just 2.00%. The difference of a couple of percentage points can translate into hundreds of dollars or more in lost interest.
| Interest earned on 5-year CD | 2.00% APY | 4.00% APY |
|---|---|---|
| $5,000 deposit | $525.39 | $1,104.98 |
| $10,000 deposit | $1,050.79 | $2,209.97 |
Data source: Author’s calculations
Sure, by the time your CD matures, the economic environment may have changed and rates may have dropped across the board. Even so, it’s important to shop around for the best deal and actively decide what’s best for your money. You never know, CDs might have lost their shine by then and you might want to do something completely different with your money.
What should you do?
When you open a CD, set a couple of calendar reminders to alert you three or four weeks before it’s due to mature. At that point, you can research what rates are available and decide what you want to do with your money.
Here are some steps to take:
- If your bank hasn’t contacted you, reach out and ask what your options are and how long the grace period is.
- Find out what rate you’ll get if your CD renews automatically. Compare this with other CDs and savings accounts.
- Think about whether your financial goals have changed and ask yourself if CDs are still the right option. If you don’t need the money in the near term, consider investing it in the stock market.
- If you are carrying a balance on high-interest debt, like a credit card, it might make more sense to pay it off rather than reinvesting in a new CD.
Key takeaway
CDs can be a fantastic way to boost your savings. Not only can you lock in high APYs, but most CDs are covered by FDIC insurance, which gives an extra layer of security. However, CDs are not a set-it-and-forget-it investment. Make a note of when your CD is due to expire. That way you can actively decide how to use that money when the time comes.
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