Is CD maturing soon? Avoid this costly trap as a Fed rate cut approaches

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Expensive CD censorship that can hurt you twice

When your Certificate of Deposit (CD) approaches maturity, you face a deadline: give instructions or your bank will do it for you — usually by transferring your balance to a new CD that can hurt you twice.

First, the renewal rate is often much lower than today’s best CD revenues. Banks usually go with one non-competitive option, sometimes so low that it’s abysmal compared to what you could earn elsewhere.

Second, a rollover may result in your funds being locked up for longer than you planned. A one-year CD turns into a two-year commitment, a two-year CD doubles into a four-year commitment, and so on. If you need the cash before the second due date arrives, you will face an early withdrawal penalty.

But there is good news. By planning ahead, you can avoid both problems — and choose the option that best suits your savings goals.

4 steps to take before renewing your CD

Avoiding a bad extension is not complicated, but you need to act before maturity.

Step 1. Decide whether you want to secure your money again or keep your money flexible

If you may need access to your money soon, a high-yield savings account may be the smarter choice, with the best accounts now paying 4% to 5%. However, these returns will not remain at this level for long. The Fed is widely expected to cut interest rates next week and possibly again in December, so today’s higher interest rates will likely start to decline soon.

But when prices drop, CD can really shine. For money you won’t need right away, locking in one of today’s best CD rates guarantees your return until maturity — no matter how many additional cuts the Fed makes.

Step 2. Compare your renewal offer to today’s best rates

When your CD is about to mature, your bank will usually offer one rollover deal — but those rates almost always suck compared to better options elsewhere. To find out how you fare, check out our ranking of the best CDs nationwide.

Step 3. Give instructions before your subscription is renewed at a bad rate

A few weeks before the due date, your bank or credit union will send instructions on how to direct your CD funds. Ignore the deadline, and your credit will transfer to a new certificate you probably don’t want.

If you’re feeling unsure, you can always instruct the bank to move your CD balance to a savings account — either at that institution or an account you’ve linked. This keeps your money flexible and ready to be redistributed, even if you later choose to put it in another CD.

Step 4. Plan your next step to keep your savings growing

If you decide to buy another CD, act quickly – yields are already falling, and further cuts by the Fed could bring interest rates down even further.

One smart move is to open a new CD before your current one matures, if you’re able to double down on your commitment for a short period. This may allow you to get a better rate than might otherwise be available after Your original CD is matured.

Or split your balance: keep some in a high-yield savings account for easy access and the rest in a CD for higher guaranteed returns. You’ll maintain your flexibility without risking an early withdrawal penalty.

How to Find the Best Savings and CD Rates

Each business day, Investopedia tracks rate data for more than 200 banks and credit unions that offer CDs and savings accounts to customers across the country and determines a daily ranking of the highest-grossing accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the minimum initial account deposit must not exceed $25,000. It is also not possible to determine A maximum The deposit amount is less than $5,000.

Banks must be available in at least 40 states to be eligible to be available nationwide. While some credit unions require you to donate to a specific charity or association to become a member if you do not meet other eligibility criteria (for example, if you do not live in a certain area or work a certain type of job), we exclude credit unions with donation requirements of $40 or more. To learn more about how to choose the best rates, read our full methodology.