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What is a CD rollover?

A CD rollover could help you ensure that your cash is working hard for you, but it may not be a good fit for everyone.  Getty Images/iStockphoto

If you're saving money for a specific purpose or have savings beyond what you need for emergencies, a certificate of deposit (CD) is a compelling option to consider. After all, it's important that your money earns a return that's higher than the current inflation rate — and many of today's CDs do that thanks to the current high interest rate environment. 

When you open a CD, though, it comes with a maturity date, and you get a fixed rate of return until the CD term ends. But once your account matures, those earnings end — unless your CD has a rollover feature. But what exactly is a CD rollover and should you take advantage of one?

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What is a CD rollover?

Some CDs come with a rollover feature, which means that when the CD matures, it will roll over into a new CD. That lets you earn a continuous return from your investment. 

When a CD rolls over, the money is reinvested, along with the earned interest, into a new CD on your behalf. Your new CD will typically have the same term as your old account, but the interest rate may change to the current rates being offered at the time of the rollover.   

For example, let's say you have $10,000 in 5-year CD that matures on March 1, 2024. If the CD has a rollover feature, the bank will re-invest your $10,000, and typically the interest it has earned, into a new 5-year CD at the 5-year CD APY being offered when your CD account matures. 

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Should you let your CD roll over?

Whether or not you should let your CD roll over depends on a range of factors, including "market conditions, financial goals and risk tolerance," says Cameron Burskey, senior partner and managing director of retirement security at Cornerstone Financial Services. 

These factors include: 

Whether your current CD meets your objectives

"If your financial goals include preserving your capital and you're currently satisfied with the CD terms, then rolling it over may align with your objectives," says Burskey. 

That's especially true for risk-averse investors, according to Burskey. 

"CDs offer security, but provide lower returns. If you're looking for less risk, then rolling over your CD is likely best," Burskey says.

Whether there's a better offer available

The financial institution will likely roll the money from your CD over into a new account with the same term at the current rates. That may not be a good thing, as it doesn't allow you to compare rates offered by other providers before locking in a new CD rate. 

So, while it may be a good idea to let your CD roll over in some situations, it can make sense to compare your options with multiple providers beforehand. 

Whether you need the money

Some people use CDs to save for a specific purpose. For example, if you plan on taking a vacation at the end of the year, you may open a 6-month CD to lock up the funds for that vacation, as doing so allows you to earn returns on your cash. Once the CD in this example matures, you may need the money you've deposited in the account to pay for the vacation. 

There are lots of reasons you may need your money after the CD matures. If you do, it may not be a good idea to let your CD roll over. 

What if you want to stop a CD rollover from happening

Before your financial institution rolls the money from your CD into a new account, they must send written notice of when that rollover is expected to take place. If you receive notice of a coming CD rollover and you want to stop it, contact your financial institution before it happens. 

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The bottom line

A CD rollover is a way to automatically reinvest your money when your CD matures. Before you let your CD roll over, though, be sure to consider your goals, current market conditions and whether or not you can earn a better return elsewhere. 

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