CD owners: Beware automatic renewal

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All too often owners of certificates of deposit fail to collect the funds from a matured CD before it automatically rolls over into a new one. At that point they have to wait for the new CD to mature to get their cash without penalty.

Not everyone is happy to have their CD renewed at potentially less than ideal terms. For instance, a comment on a story about CD early withdrawal penalties included this lament:

“… I have a retirement CD for $50,000. I was a day late in stopping the automatic rollover so I will earn $37.50 for 9 months. Or, if I withdraw early I pay $525. Hmmm a $525 penalty for a chance to earn $37.50. Sure, that seems fair.”

Please read the fine print

No one enjoys the sick feeling of realizing they have just cost themselves a lot of money.

The usual contract says that upon maturity the customer will have a number of days known as the grace period to withdraw or transfer the cash. The account agreement also spells out what will happen after the grace period; typically an automatic renewal of the CD. The renewal will be the same term as the matured CD at prevailing CD rates.

While that may be convenient, some savers may prefer to shop around for higher CD rates.

Have you had any unpleasant surprises with automatically renewing CDs?

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Senior investing reporter Sheyna Steiner is a co-author of “Future Millionaires’ Guidebook,” an e-book written by Bankrate editors and reporters. It’s available at all the major e-book retailers.