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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 next week.

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 money elsewhere.

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.

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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.

Your responsibility
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.

Ready to invest in a CD? Find the best yields in your area.

"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 mail.

"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."

Your options
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 of."

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

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See Also
How to ladder a CD portfolio
Swiss banks aren't only for spies
Living below your means

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