Beware bank CDs that mature and roll directly into another CD, potentially at a much lower rate. Imani Moise explains this scenario in The Wall Street Journal, writing:
John Furlong signed up for a certificate of deposit last year that paid 3.85%. When he checked his account in February, he was surprised to find the bank was only paying him 0.05%.
The 62-year-old construction manager thought there was a mistake. Then an employee at his branch in Henderson, Nev., told him that his $50,000 CD had matured and automatically rolled into a new one that was paying a lower rate. The only way to get out of the low-rate CD was to pay an early withdrawal fee
“It’s fool’s gold,” he said. His money is earning $2.15 a month until the new CD matures in October, instead of the $160 he had been collecting.
Americans poured more than $2 trillion into CDs to lock in higher interest rates since the Federal Reserve began raising its own rates in 2022. When CDs mature, roughly half of them are automatically rolled into new bank-issued CDs and locked up again, according to data and consulting firm Curinos.
Customers are finding that some of those new CDs come with rates that pay much less than the old ones.
Cash investments, some of the biggest opportunities of the high-rate era, aren’t always living up to their advertising. Some banks have also left customers in savings accounts with low rates, while advertising high yields to draw new customers.
CDs can offer some of the highest rates on cash because customers agree to lock up their money for say, six months or two years. By contrast, savings and money-market accounts can change their rates at any time.
Action Line: CDs may pay slightly higher rates, but money markets don’t have the same reinvestment risk. This is why Your Survival Guy recommends consolidation at Fidelity and using their money market accounts. When you want to talk about this process, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
E.J. Smith - Your Survival Guy
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