Don’t Make This Costly CD Mistake at Maturity—Try These 4 Smarter Alternatives

The Costly Mistake Many People Make With CDs

Anytime you have a certificate of deposit (CD) nearing its maturity date, you face a deadline to decide what to do with the resulting funds. If you take no action, this could be a big mistake—as your money will most likely be rolled into a new CD at the same institution.

While automatic rollovers seem convenient, they limit your choices and often cost you. First, they typically prevent you from earning a competitive interest rate, as the bank or credit union will only offer one rollover CD, and it’s likely to pay a subpar return. To earn a higher rate, you’ll need to take action.

Second, a rollover CD essentially doubles the length of time your money is locked up. A 1-year CD turns into a 2-year commitment, a 2-year CD becomes 4 years, and so on. Getting locked into a term that doesn’t match your financial goals is problematic—especially since you’ll face an early withdrawal penalty if you need to cash out before the term ends. Instead, avoid the rollover, take control of your money, and make a choice that aligns with your needs.

4 Smart Steps To Take Before Your CD Matures

Step 1. Should You Open a New CD or Keep Your Money Flexible?

If you’re unsure about locking into another CD because you might need access to the funds soon, a high-yield savings account could be a better alternative. The best of these currently offer up to 5.00% APY, providing a solid return while keeping your funds fully accessible when you need them.

However, with the Federal Reserve potentially cutting interest rates this year, savings account rates are likely to drift lower. That means the 4%–5% APYs available today will probably fade away, with lower top returns expected next year.

That’s why a new CD guaranteeing one of today’s top rates could be a better option, if you don’t need your funds for a bit. Since CDs offer a locked-in rate promise, it won’t matter how often the Fed cuts interest rates. Your CD will keep paying its advertised APY until it matures.

Step 2. Compare Your Rollover Offer vs. Today’s Best CDs

When you’re notified by your bank or credit union about a maturing CD, you’ll see the rollover CD they’re offering, including its term and rate. If you want to reinvest in a new CD, now’s the time to shop around for the best options.

Fortunately, we make that easy with our daily ranking of the best nationwide CDs. It not only guides you to top APYs but also helps you determine your ideal CD term, based on how much today’s best offers pay across different durations.

Step 3. Don’t Miss the Deadline: How To Give Instructions Before Auto-Renewal

Several weeks before your CD matures, your bank or credit union will contact you with instructions on how to specify what you want done with your funds. They may provide a reply form, envelope, or instructions for using online banking or telephone services.

If you’re unsure about what to do with your CD funds, it’s smart to instruct the bank—by their deadline—to simply transfer your balance into a savings account at that institution or another one you have linked. This ensures flexibility, as it will be easy to move the money later, no matter what you ultimately decide. Even if you choose to open a new CD at the same bank, for example, you can do so easily with funds that were temporarily moved to savings.

Step 4. Plan Ahead on Your Next CD To Maximize Returns

If you’ve decided to open a new CD, it’s wise to act quickly and lock in the best rate you can find for a term that aligns with your financial goals. With rate declines already affecting the CD market and more reductions expected, the sooner you lock in, the higher the APY you’re likely to secure.

In fact, if your current CD isn’t maturing for another month or two, and you have additional funds you can live without for a short period, opening a new CD now could be beneficial. By doing so, you could lock in a better rate than what might be available when your current CD expires.