Avoiding the forgotten-CD rollover blues
The way interest rates have been going lately,
you might not want to renew that two-year CD you've got that matures
That's why it's important to keep track of when certificates
of deposit are maturing so you can explore other fixed-income options
and decide whether you want to reinvest in another CD or put your
Most CDs automatically renew if you don't give the
bank other instructions when the CD is about to mature.
Federal banking regulations require financial institutions
to notify customers when CDs with a maturity of longer than one
month are coming due if that CD automatically renews.
The regulations state that a notice must be sent at
least 30 calendar days before maturity, or 20 days before the end
of the grace period, providing a grace period of at least five calendar
days is allowed.
Your grace period
Most financial institutions give a seven- to 10-day grace period
after the CD matures. Consumers who forgot to notify the bank of
their wishes prior to maturity can cash the CD without penalty during
the grace period even though it's been rolled over for a new term.
People who tend to toss aside mail from their bank
-- therefore missing the maturity notification -- may want to find
a bank that allows them to opt out of the CD automatically renewing.
Some banks allow customers to make that request when the CD is purchased
-- but don't expect bank personnel to mention it first.
"We have an option customers can select for a
single maturity CD, but it has to be specifically asked for,"
says Bank of America's Tom Greuling. "If they don't want to
automatically renew, we can honor that request."
If you notify the bank that you'll be cashing the
CD at maturity, interest will stop accruing as of the maturity date.
But if you forget to instruct the bank and the CD rolls over, the
institution may give you the additional interest providing you cash
out before the end of the grace period.
Be sure to give the bank your CD instructions in person or
in writing. A phone call won't do, according to Juanita Swinton
at Community Savings in North Palm Beach, Fla.
"Nobody can take a phone call as an instruction
for what to do with a maturing CD. Nothing gets done over the phone;
it has to be in writing."
Swinton says customers who can't visit the bank in
person may write a letter because the bank can verify signatures,
but make sure you leave plenty of time for the bank to receive the
"You're counting on the post office to get the
instructions to the bank in time. It would be worth following up
with a phone call."
If your CD is with an Internet bank, you'll still
have to use snail mail, not e-mail, although that may change as
electronic signatures become popular.
Even Internet banks send their maturity notification
by regular mail.
"They get system-generated advice specific to
that CD account -- the amount, principal, interest -- plus a list
of options. This is all sent through the mail," says Netbank
president Michael Fitzgerald.
"We do plan, in the next year, to also provide
an e-mail advice to customers. Many of our CD customers don't use
e-mail. They aren't hard-core Internet banking customers. We want
to make sure they get the message. Over time we're getting more
and more customers who are willing to communicate through e-mail."
No matter what the interest rate environment is when a CD matures,
it's always best to review your options.
Jim Knaus, a certified financial planner with LaBrecque,
Jackson, Price & Roehl in Troy, Mich., says there are other
vehicles to be considered.
"Look into notes, or a note fund. They can be
short term. In a low interest-rate environment I don't like to stick
my neck out too far because rates may rise. You may even want to
consider income-oriented REITs (real estate investment trusts).
I would tend to avoid annuities. The yield may be higher but you're
locking into a more inflexible arrangement than what you came out
Stay on top of those CDs that are maturing so you
have plenty of time to check with a financial planner or your bank
to see what options you have when it's time to roll over your CDs.
-- Posted: Jan. 4, 2002