Here's What Happens When You Don't Take Action as a CD Comes Due

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Money you might need for emergency expenses should sit in a savings account. But if you have money beyond your emergency fund, it could pay to open a CD (certificate of deposit).

The upside of opening a CD is that you're likely to get a better interest rate on your money than what a savings account will pay you. And also, with a CD, that rate is guaranteed for the term of your CD.

Let's say your savings account is paying 4% interest today. There's no guarantee that it will be paying 4% in two months from now. But if you lock in a 12-month CD at 4.5%, you're guaranteed a 4.5% interest rate on your money for a full year.

Now, the downside of putting money into a CD is that you can't access your cash before your CD matures without incurring a penalty. That penalty will depend on the institution you bank at. At Capital One, for example, you'll be penalized three months of interest for cashing out a 12-month CD before it comes due.

Meanwhile, if you already have money in a CD, it's important to keep track of its maturity date. It's also important to take action before your CD comes due. If not, you may wind up unhappy with what your bank does with your money.

When you sit back and do nothing

Generally, your bank will notify you when you have a CD that's about to come due so you can make a decision on what to do with your money. You may decide to have that CD renew. Or, you may want to cash it out at maturity and have the money deposited into your savings or checking account. From there, you'll get access to your cash, which means you can leave it with your current bank or opt to open a CD at a different bank offering a better interest rate.

But if you do nothing as your CD comes due, what'll generally happen is that your bank will simply roll your CD into a new one with the same term length. So if you have a 12-month CD coming due and you take no action, your bank might start you over with a new 12-month CD. From there, you'll be committed to that term unless you want to risk a penalty.

You should also know that when this happens, you'll be signed up for that new CD at whatever interest rate your bank is offering at the time. That rate may be better or worse than the rate you locked in on the CD that's maturing. And it may be better or worse than the rate you might get at another bank.

It pays to take action

Putting money into a CD can be a smart move, but it's important to know when your CD is set to come due and decide what you want to do with your money once that happens. It's equally important to inform your bank of your decision before your money is rolled into a new CD automatically.

If you bank online, you can usually go into your account and make your choice so your bank knows what to do on your CD's maturity date. If not, you'll need to contact your bank and ask how to make your choice known. But either way, it's better that you decide what to do with that money -- not your bank.