Did you open a CD with a stellar APY only to have it called back before its maturity date? If you have what’s known as a “callable CD,” you may not have actually locked in that high CD rate for the entire term.
Typically, callable CDs offer higher rates than traditional CDs, but they require more investment strategy. Getting the highest yield possible may sound like a great reason to open a callable CD — until the bank redeems your CD far before its maturity date, leaving you to open another account at a lower rate.
Didn’t read the fine print and had your CD “called” back unexpectedly? Here’s what you need to know about callable CDs.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What is a callable CD?
Callable CDs are similar to traditional CDs, but there is one key difference. Callable CDs let the bank or brokerage firm call back your CD before its official maturity date. You will still receive your entire principal and any interest you have earned until that point, but you’ll miss out on future earning potential. Often, callable CDs have longer terms than traditional CDs, with maturities usually ranging from 15 to 20 years.
When savings rates fall, a bank is more likely to call back a CD. If you open the CD with a 5% interest rate and rates have fallen significantly since then, it’s not in the bank's best interest to pay that 5% rate. On the other hand, if rates increase, your CD is less likely to be called.
Rates on savings accounts have been steadily dropping, especially after the Fed’s September meeting, when it cut interest rates for the first time in four years. Back in 2022, when the Fed began its rate-hiking campaign, savings rates skyrocketed, leading to a surge in popularity among CD accounts. However, as inflation cooled, the Fed paused rate hikes before eventually cutting rates by 50 basis points, which caused yields on CD accounts to fall significantly.
To browse current rates on traditional CD accounts, use our tool below, powered by Bankrate.
However, the bank can't call a CD until the call protection period has ended. The call protection period is the timeframe from when you open the account until the issuer can call back the CD, which can range from a few months to a few years, depending on the maturity of the account.
Bottom line
While callable CDs offer higher rates than traditional CD accounts, they have one huge caveat — the bank can revoke the CD before its set maturity day, which is typically done when rates fall. And rates have been on the decline in recent months. So before you open a CD, be sure to read the fine print, or you could miss out on future earnings. And if you do decide to open a callable CD, ensure you have an investment strategy in place for when it gets called.
Related Content
-
The Y Rule of Retirement: Why Men Need to Plan DifferentlyIf you have a Y chromosome (because you're a guy), following the 'Y rule of retirement' can help you transition to this new life stage with grace.
-
Retire on This Island for Mediterranean Living on the CheapThis independent nation has a lower cost of living and more visa options than many of its Mediterranean cousins.
-
High-Yield Saving Options Before Rate Cuts HitSavers can still access higher savings rates. However, with inflation rising and potential rate cuts looming, you have a tighter window to capitalize.
-
You'll Kick Yourself in the Fall if You Don't Make This Savings Move NowInflation will likely prevent the Fed from cutting rates until the fall. However, does a long-term CD provide enough of a return to outpace climbing prices?
-
Is Your Money in the Wrong Place? Why More Savers Are Shifting Money Away from Big BanksTraditional savings accounts aren’t cutting it — here’s where the money is going instead.
-
Dave Ramsey Calls Out These 5 Money Mistakes — Are You Guilty?Your debt can prevent you from reaching your financial goals. Per financial advisor Dave Ramsey, here are the common reasons keeping you in it.
-
The Rules of 'Revenge Saving' to Take Control of Your FinancesFrom post-pandemic spending to rising prices, Americans are saving with new urgency. Here's how to channel that momentum into lasting change.
-
3 Things Dave Ramsey Says to Stop Buying — and 2 That Are Worth ItDebt-free living starts with smart choices. Here's what Ramsey says to avoid and where your money is well spent.
-
This is the Best CD to Get Amid Rate UncertaintyThis CD helps you earn more than 4%, with quick access to your cash if you need it.
-
This Savings Account Earns You More Than $4,000. Here's HowSee how a jumbo CD can help you reach your savings goals quicker.
