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