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What Your Have to Know About CDs Automatic Renewal Policy and Why You Should Be Careful

EPF Last Update: May 21, 2020

How much do you know about the CD’s automatic renewal policy? Are you aware that it could cost you a big chunk of money? You need to properly understand your certificate of deposit (CD’s) date of maturity so that you can avoid losing money through potential penalties.

A Brief Overview on Certificate of Deposits

Certificates of Deposits (CDs) refers to a type of financial product where you earn a rate of interest higher than a conventional savings account. Investing your money in financial organizations such as credit unions and banks, for a fixed period amounts to higher interest rates. When you invest over a period, it means you cannot withdraw your money without incurring a penalty until the fixed term elapses.

In most cases, the terms for a Certificate of Deposit ranges between six months and five years. After doing your assessment, you are free to decide on the amount of time you would like to subscribe to this service. The amount of money that you assign to CD together with the time help in the calculation of the interest and yield you shall earn. If you are looking for higher benefits, then you need to invest a large amount of money over an extended period.

The maturity date refers to the time when your CD commitment ends. When this time comes, you are free to remove your money from the CD without incurring a penalty.

What is a Certificate of Deposit Automatic Renewal?

Automatic renewal refers to a policy set up by the financial institution to notify that your maturity date has arrived. They further give information regarding their next course of action with your money if you fail to inform them of what to do with it upon maturity.

Here are some of the essential points that you must understand about Certificate of Deposit

  • Any withdrawal made within the CDs term period will automatically attract a penalty. Different financial institutions have different penalties; they could include ineligibility to earn interest on the CD. Some institutions would take some of the principal that you originally invested in the CD.
  • Generally, you will get a notification just before your certificate of deposit comes to its maturity date. Usually, this happens in a week or two before the maturity date of the CD. You will get the notification through email.
  • As soon as the Certificate of Deposit matures, you get some days to decide on what you would like to do with your money. For most institutions, an allowance of five to fifteen days is given to you to make a decision, after which they proceed to make an automatic renewal of the CD term. Once the given grace period elapses, the CD is renewed for the initial term length.
  • Some of the options you can select from once your CD matures are; letting the Certificate of Deposit renew for another term. You can decide on choosing a different term or withdraw all the money that your account has earned.
  • If the CD happens to renew automatically without your knowledge, your money gets locked for another term, and any further withdrawals attract a penalty.

Conclusion

One of the simplest and less risky ways of making more money is by letting your certificate of deposit to renew for yet another term. Continuous renewals enable you to capitalize on the accumulating effect of money. It, therefore, means that with time, you will earn interest on top of the interest that accumulated from the previous period.

Before locking your money in a certificate of deposit, you should ask your financial institution the following questions.

  • Will I get a notification before my Certificate of Deposit matures?
  • How many days before maturity do I get the notification?
  • In what way will I get the notification? Email or Mail?
  • What grace period do I have before my certificate of deposit renews automatically?
  • What penalties does the financial institution impose for early withdrawal?

Regardless of your financial institution’s automatic renewal policy, it would be best if you always had a reminder of when your CD(s) will mature. With that, you will have a total control over your money.

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