CD Coming Due? Why You Shouldn't Automatically Roll It Over

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KEY POINTS

  • When a CD comes due, you can cash it out or roll it into a new CD.
  • You may want to go the former route for one big reason.
  • CD rates might climb even higher in the near future, so waiting to open a new one could benefit you.

Holding out could work to your benefit.

There's a reason some savers like to put their money into a certificate of deposit, or CD: CDs tend to pay higher interest rates than savings accounts do.

Of course, in exchange for that higher rate on your money, you're forced to lock some cash away for a preset period of time. And if you cash out a CD early, you'll be penalized for it (generally to the tune of several months' interest, depending on your CD term and the bank you have your money at). But all told, if you have money you don't expect to need for six months or a year, and you also don't want to invest that money in a brokerage account, then a CD is a good bet.

If you put money into a CD a while ago, you may be reaching the point where that CD is about to come due. And from there, you have a couple of options. You can cash out your CD, take your money, and do whatever you want with it. Or, you can roll your CD into a new one.

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The latter option might seem like a good one seeing as how CD rates are higher now than they were last year or earlier on in 2022. But you may want to hold off on rolling over your CD for one big reason.

Rates have the potential to climb even more

You might snag a decent interest rate on a new CD right now. But there's a chance CD rates will continue to rise in the coming weeks or months.

The Federal Reserve is not done implementing interest rate hikes. And as it moves forward with those hikes, CD rates have the potential to climb. You may want to hold off a bit on rolling over your CD so you can wait to see how rates trend.

Additionally, you may want to hold off on renewing your CD if your bank doesn't offer the most competitive CD interest rates. Instead, you may want to take the time to research CD rates and find the best home for your money.

What to do with your CD instead of rolling it over

Rolling your CD into a new one is an option you can consider, especially if you stick to a shorter time frame, like a 6-month CD. But if you want to wait and see how interest rates trend, then a good bet is to put that cash into your savings account, ideally a high yield one, until you've made a decision. You don't necessarily want to stick it into your checking account, because then you might be tempted to spend it.

At the same time, if you're not set on rolling your CD into a new one, you might consider taking some or all of that cash and investing it. Stock values are down year to date, so now is a good time to scoop up shares at a lower price.

Investing your money will mean running the risk of losing some, whereas with a savings account or CD, your principal is protected. But investing gives you a chance to score a higher return on your money than a CD might allow for, and that's reason enough to consider it as an option.

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