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CD Grace Period

diamondx
diamondx   |     |   136 posts since 2011

Is there any legal requirements regarding grace periods for cd's ? Does the bank even have to offer any time between maturity and automatic renewal ? Just something to be aware of with some of the tricks and extra fine print offered by some of these places.



Answers
111
111   |     |   41 posts since 2019
I'm not 100% certain but I'm about 99% certain that there is no such legal requirement. In part this is because in a very recent post I read about a particular CD offer, Ken Tumin specifically mentioned the lack of a grace period - https://www.depositaccounts.com/banks/frontwave-credit-union/offers/
paoli2
paoli2   |     |   2,568 posts since 2011
In over 50 years of buying CDs, I have never done business with any institution which did not give a grace period upon Maturity and I still won't. Especially as low as rates have been, one surely doesn't want their CDs to rollover into the same low rate if another bank or cu is offering higher. That would be a double whammy against savers if they took the grace period away!
MoneyMoves
MoneyMoves   |     |   5 posts since 2019
No grace period BUT in addition Ken stated:

It’s your responsibility to send written instructions before the maturity date to not renew the Share Certificate and that you will withdraw the funds at maturity.

This has been my habit for years; to communicate with the bank or credit union that upon maturity DO NOT RENEW (then depending on their options) how to provide the money to me instead of a renewal. About a month before maturity verify the instructions are accurately still on the account.
QED
QED   |     |   92 posts since 2013
I'm responding to the comment left by MoneyMoves:

I agree it is acceptable when the financial institution requires a CD account holder to provide, prior to maturity, guidance regarding disposition of funds in the CD upon maturity. The problem I have encountered, as a senior citizen, is an additional stipulation, to wit:

Not in every case, but too often the financial institution will only accept such guidance close to the maturity date of your CD. I find this wholly unreasonable. As a senior I have no way to know the circumstances of myself or my family members, for example, two years from today. Most often I know at time CD is opened that I do not want it to renew. And I'm alive and well at that time, anxious to provide such instruction to the financial institution. But some, not all, are unwilling to accept such instruction, again just by way of example, two years in advance.  Instead they will say to you something like:  "We cannot take that order now.  Contact us within two weeks of maturity."  And that is a bad thing.

In addition, as an adjunct to the above, I want to vent a pet peeve I have related to virtually every financial institution in the industry.  With far too few exceptions their default maturity assumption at time of CD opening is renewal.  There should be a law forcing an end to this practice, which is especially onerous for seniors.  Instead standard practice should be to offer maturity options when the CD is opened, with no forced default even existing.  Typically those maturity options would be:

Renew or send a check or move funds to another account

Too few financial institutions even offer these options today when you open your CD.  And for virtually all financial institutions the default, if you do not make a choice, is renewal.
MoneyMoves
MoneyMoves   |     |   5 posts since 2019
That's an interesting question, legal requirement or not. Per FDIC's site, giving banks examples of clauses and forms, it appears it is the bank's option how they choose to specify renewal terms:

(1) Automatically Renewable Time Accounts

This account will automatically renew at maturity.

You will have [_______ calendar/business] days after the maturity date to withdraw funds without penalty;

or

There is no grace period following the maturity of this account to withdraw funds without penalty.

Reference: https://www.fdic.gov/regulations/laws/rules/6500-3980.html
me1004
me1004   |     |   845 posts since 2010
No, no requirement for a grace period. One example of one financial institution that does not, at least for its step-up CDs, is INOVA FCU.

But there is no reason to worry if you simply set the CD up to automatically close to your savings or checking account. That way it can't rollover by accident and get locked in. The only advantage of a grace period is if you actually do want to renew it, but fail to act until after the maturity date. In that case, you would get interest during the grace period, but few places give the CD level interest, rather than the savings interest, if you close during the grace period.

I long ago started to always set CDs up at time of opening to close to my checking account at maturity. And closing to the checking makes it easy to move the money elsewhere buy simply writing a check. But I can still renew the CD if I want to.
AnnO
AnnO   |     |   129 posts since 2018
"But there is no reason to worry if you simply set the CD up to automatically close to your savings or checking account."

The problem, as QED already pointed out, is that many will not let you set that up until very close to the end date.


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