When the term expires, you have a few choices to make, including rolling over the CD or a rollover that tweaks your CD’s formula. You can also use rollovers to create an investment strategy that keeps the money rolling in and out of CDs over several years. Here’s an overview of CD rollovers, what to know before the maturity date arrives, and your options.
How a CD Rollover Works
Typically, when you first set up your CD, you’ll choose whether you want the CD to roll over automatically or the money returned to you at the end of the term. As the term continues, you can log into your online account or speak with a customer service representative to change these preferences. You may also be able to change preferences during a grace period after the CD expires. About 14 to 30 days before your CD expires, the bank or CD issuer will contact you to alert you that your CD is about to “mature” or finish its term. On that maturity notice, the bank generally describes whether it pays interest after maturity if you don’t renew your CD account. On the date of expiration or CD maturity, your choice of action will occur. This could be an automatic rollover; any changes you’ve requested to the amount, term, or type of CD; or the return of your funds and interest (if you chose a payout at the end of the term). A rollover works like an automatic renewal of your CD’s term. It will auto-renew or roll over into another CD with the same term. So if you had a six-month CD, it will roll over into another six-month CD. If you choose the rollover, the CD’s rate probably won’t stay the same. It will be adjusted to the current rate, which may be higher or lower than your previous rate.
Making CD Rollover Changes
Depending on the bank or credit union, you may be able to make any of the following changes to your CD in combination with the rollover process:
Add some money to your CDTake cash out of your CDChange the CD termChange the CD type
In the latter two situations, you won’t be rolling over into the same type of CD you held previously. For example, you could move your six-month term CD into a no-penalty CD or a three-month one instead.
Closing the CD
If you wish to avoid the rollover altogether, you’ll need to read your account agreement to find out how to close your account and withdraw funds. Depending on your bank or credit union, you can request a transfer of CD funds to a linked account or via a mailed check. You may also choose to transfer funds to another bank’s CD or investment product.
Pros and Cons of a CD Rollover
Pros Explained
Set-and-forget investments: Choosing automatic rollover at setup means you won’t have to worry about maintaining a federally insured CD for years to come. Renewal bonuses: Some banks may offer renewal bonuses when you roll over your CD. Using CD rollovers to create ladders: You can use the rollovers to create automatic reinvestments in a CD ladder.
Cons Explained:
Return risks: Rolling over a CD could lead to missing out on investments with a better rate of return or finding that the new interest rate isn’t keeping up with inflation’s pressure on costs. Recordkeeping confusion: If you can’t keep track of CD maturities, your CD might auto-renew when you didn’t intend it to do so. Missing out on better CD rates elsewhere: You probably chose your CD after shopping around for the best CD rates and terms. If you roll over, you may miss out on another bank or credit union’s better CD rates.
Can You Add Money When Rolling Over a CD?
You can often add money when rolling over a CD, depending on the CD’s terms. Some banks may even allow you to schedule a new cash infusion in advance. At maturity, the new cash is bundled with your existing CD for the rollover. If your CD pays compound interest or a higher rate for larger cash amounts, you might want to boost your CD’s amount.
On the other hand, you might want to invest additional funds in a new CD if your bank offers a promotional interest rate for a different type of CD, especially if the rate is better than your current rollover CD rate. You might also want to add money to your current amount to open a new jumbo CD, which is based on a higher initial deposit.
How Do Rollovers and CD Ladders Work?
A CD ladder is a strategy that can utilize the power of rollover to create an automatic savings process that still frees up cash on a routine basis. With a CD ladder, you put equal amounts of money in three or four CDs with terms that expire on a rolling basis—perhaps one month, three months, and six months; or one year, two years, and three years. When you set up the CD, you set the rollover to automatically roll into the next-longest time frame. As an example, say you use $20,000 to build a CD ladder with one-year maturity increments. You can set up four different CDs with $5,000, each with various CD terms and rates:
$5,000 in a 12-month CD with 1.25% APY $5,000 in a 24-month CD with 1.55% APY $5,000 in a three-year CD with 1.75% APY $5,000 in a four-year CD with 1.90% APY
When the 12-month CD matures, open a new four-year CD. When the 24-month CD matures, open another four-year CD, and so on. In four years, you’d have only the higher-yielding CDs in your ladder, and every year one of them will mature. If you need cash at some point, you can stop the rollover before a CD matures.
Should You Roll Over Your CD?
If interest rates have increased since you opened your CD, find out what your new rate will be during the notification or grace period before maturity. Then, research similar CD types to see if you can find a better interest rate elsewhere. Compare apples to apples by term length and any requirements (deposit amounts, no-penalty or penalty withdrawals, etc.). Find out your new CD rate before rollover if interest rates have decreased since you opened the original one. You may need to decide whether a potentially lower interest rate is worth the lower risk and tying up funds—or if you’re losing money due to inflation’s erosion of the dollar. If you’re unlikely to have the time to research new, better rates of return elsewhere and don’t need the cash, you might go with the bank’s automatic CD rollover. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
