Insights & Stories

The Benefits of Auto-Renewal on Certificates of Deposit

Reading time: 6 minutes

February 23rd, 2024

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Have you ever chosen a certificate of deposit (CDs) to squirrel away important funds?

If you did so recently, you’re definitely not the only one. Nationally, balances in certificates of deposit increased to over $480 billion in February 2023, up from $36.5 billion the previous year, according to Federal Reserve data.

Many see CDs as an attractive investment option due to their interest rates and typically lower risks. But what if you are nearing the end of your CD’s term and want to extend your growth period?

A mature CD doesn’t have to interrupt your saving efforts. This is where CD rollover may be useful.

Why do savers choose CDs?

Broadly, CDs provide several key benefits. For example, they:

  • Typically pay a higher rate of interest than a regular savings account, which can be even more beneficial during periods of higher interest across the nation.
  • Let you estimate how much interest you will earn at the beginning of the CD term, because you know the interest rate you have locked in and its time frame.
  • Give you the date you will receive your interest and original deposit back, (known as the maturity date).

Exploring the benefits of CD auto-renewal

You could potentially compound those benefits if you roll over your CD for another term. One of the key downsides of CDs is actually withdrawing the money before the initial term ends. That can result in a withdrawal penalty. On the other hand, there are real benefits to auto-renewing a CD. In short, the longer you’re in, the more you save.

Rolling over a CD may help you:

Save up on autopilot. Once set up, your CD (or time deposit) account can automatically renew at maturity, ensuring your money is consistently earning interest without any additional effort on your part.

Earn more compound interest. By continuously reinvesting your principal — and the accrued interest — certificate of deposit rates can yield growing savings over a longer time.

Lock in interest rates. While interest rates fluctuate, auto-renew offers the opportunity to lock in favorable (higher) rates. This means your investment can continue to grow at a steady rate — even if rates begin to fall.

Build financial discipline. Auto-renewal provides a foundation for financial discipline because it reduces any temptation to spend a lump sum you’ve received, saved, or inherited. The money is automatically rolled into a new deposit at maturity—ensuring you stay in the savings habit.

Prepare for life’s milestones. Some financial institutions offer flexible terms for auto-renewal. This means you can choose the CD duration that best fits your financial and savings goals. Not having to manually renew your deposit makes it an attractive option for busy people who need to ‘lock away’ substantial sums for a future need but want to ensure they receive steady gains.

Putting CDs to work for you

Knowing your savings are continuously growing without needing your constant attention is one way to support your financial wellbeing. For this reason, CDs may be especially beneficial for people who may not have the time or expertise to actively manage their investments or adjust risk exposure on a frequent basis.

Ready to start saving with a certificate of deposit? Connect with us to find out how Bank of Hawaii can help you understand your options to help you find the account that aligns with your financial goals.

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