Cashing Out a CD? Don't Make These 3 Mistakes
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When a CD ends, you have a short window to make a smart move. Miss it, and your bank may lock your money back up -- often at a lower rate.
Here are three mistakes to avoid if you want to get the most yield from your cash.
1. Renewing without rate shopping
Most CDs have a "grace period," usually seven to 10 days after the maturity date. If you don't take any action during the grace period, many banks will roll your money into a new CD. Your new rate might be lower, and the early-withdrawal penalty will be back in effect.
Here's how to avoid an unwanted renewal:
- Put the maturity date and grace period on your calendar the day you open the CD.
- When the CD matures, shop around for the highest rates.
- Take action before the grace period ends: renew into a similar CD with the same bank, move your cash to a CD with a better rate, or simply withdraw it to savings.
That way you're in the driver's seat, and there's no chance you'll be stuck with a subpar yield.
Why rate shopping matters
Rates change all the time. If your last CD paid 1%-2%, then today's market is very different.
Here's some quick math on a $20,000 deposit over 12 months:
| APY | Interest in 1 Year |
|---|---|
| 1.50% | $300 |
| 4.00% | $800 |
That $500 gap is the cost of not shopping.
If you haven't compared CD rates for a while, then check out our list of the best CD rates to see where you should move your money next.
2. Letting money sit idle after withdrawal
If you're cashing out your CD, don't let the money sit in a low-yield checking or savings account. Many checking accounts pay zero interest, and the average savings account pays just 0.40%. The best high-yield savings accounts (HYSAs) pay 9 to 10 times that amount.
In the long run, settling for a low checking or savings APY could cost you thousands.
One of our favorite HYSAs now is the SoFi Checking and Savings (Member FDIC) account. It has no monthly fees and an annual percentage yield (APY) on savings of up to 4.50% with direct deposit. And new SoFi® customers who make qualifying direct deposits can earn a bonus: Earn up to $300 and +0.70% Boost on Savings APY with direct deposit. Terms apply.
To earn a cash bonus and up to 4.50% APY with direct deposit, see our SoFi Checking and Savings (Member FDIC) review to learn more and open an account.
SoFi Checking and Savings
On SoFi's Secure Website.
= Best
= Excellent
= Good
= Fair
= Poor
= Best
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= PoorOn SoFi's Secure Website.
- Competitive APY on both Savings and Checking
- No monthly account fee
- Welcome bonus up to $300 (direct deposit required)
- ATM access
- Unlimited number of external transfers (up to daily transaction limits)
- FDIC insured (up to $3M with opt-in to SoFi Insured Deposit Program)
- Early access to direct deposits
- Tools to help you track savings goals
- Combo account only; no stand-alone savings or checking
- Maximum Savings APY requires direct deposit
- No branch access; online only
- Overdraft protection requires monthly direct deposit minimum
For those who plan to set up direct deposit with their new account, we think SoFi Checking and Savings (Member FDIC) is hard to beat. Not only does this savings account offer a strong APY, but the linked checking account earns an above-average rate, too -- which is a rare perk. Plus, new customers earn a bonus of up to $300 with eligible direct deposit. Frankly, it's the kind of combo that could make it worthwhile to switch banking relationships.
3. Cashing out early without knowing the penalty
Withdrawing your deposit before a CD matures will often cost you 3 to 12 months' worth of interest. That will erase a lot of your earnings.
Let's say you have $10,000 in a 12-month CD at 4.50% APY, and you cash out early. Assuming a 3-month penalty, you'll give up about $112.50 in interest.
Always check your bank's formula and weigh the penalty against what you'll gain by moving the money. It's possible that you'll earn more by eating the penalty so you can move the cash to a higher-yield account. If not, you should stay put if you can.
And if you want to avoid any early-withdrawal penalties in the future, consider an HYSA or a no-penalty CD.
Make your money count
Have a plan before the grace period starts. Rate-shop, choose the right parking spot for your cash, and act as soon as your CD matures.
If you avoid the pitfalls above, then CDs are among the easiest, safest ways to earn a great interest rate.
Our Research Expert
James McClenathen is a full-time Managing Editor and Personal Finance Writer at Motley Fool Money, overseeing the production and quality of editorial content while also writing about credit cards, investing, and everyday money management. He has worked at The Motley Fool since 2012 and brings extensive experience as an editor, reporter, and finance expert. A graduate of the University of Michigan, James has spent more than a decade of his career helping readers make smarter financial decisions.