Letting a bank roll over a CD automatically can be costly

Ron Lapinskas would like to offer a few words of caution for people who invest in certificates of deposit: Don’t let those CDs automatically roll over, he said. If you do, it could cost you.

A retired salesman in Parrish, Fla., Lapinskas started investing in CDs more than a decade ago when he began to manage his ill father’s portfolio.

Unsophisticated about such investments, he allowed the bank to automatically roll maturing CDs into similar new CDs. He assumed he was getting the best interest rate available on the new certificates. It wasn’t until the bank gave him a 5.2% rate -- when market rates were 7% or 8% -- that he took notice.

“When I questioned it, they gave me a higher rate,” he said. “But, if you didn’t know to ask, you’d just lose all that interest.”

With interest rates having risen from their generational lows and investors increasingly turning to CDs for safe yields, the lesson passed on by Lapinskas could prove quite valuable for many people. Even those with modest portfolios could earn hundreds of dollars more per year, experts say.

For example, Lapinskas said his bank recently was about to roll his matured CD into the “standard” rate of 4.45% for seven months.

But when he called, his banker told him about “today’s special rate” of 5.19% with the same terms and conditions. On a $100,000 investment, that’s a difference of nearly $62 a month.

Lapinskas estimates that failing to inquire about the best rate cost his father about $80,000 over his lifetime.

John Hall, spokesman for the American Bankers Assn. in Washington, endorses the suggestion that customers should look out for themselves.

“Always be proactive,” he said. “It is always in your best interest to try to negotiate the best deal.”

There are a handful of factors that can boost consumers’ negotiating power, Hall added.

First, anyone who has multiple accounts at a bank, such as checking, savings, CDs and mortgages, should be sure to ask whether it offers a better rate for such customers.

Many banks do that because they have found that people who have more than one account at a bank are more loyal to that institution and generate more profit for it. As a result, they’re often willing to boost these customers’ interest rates by 0.05% to 0.25%.

See an advertisement for a good rate elsewhere? Ask your banker whether he or she will match it, Hall suggested.

“The banking industry is very competitive,” Hall said. “If a bank can match the rate to keep a good customer, they will.”

Hiking the size of a deposit -- by bringing in money from another institution -- is also a good bargaining chip, he said.

Many banks offer tiered rates, with rates rising for those willing to lock up $10,000, $25,000, $50,000 or more.

Those willing to bank online are likely to earn a little extra too, said Ken McEldowney, executive director of Consumer Action in San Francisco. And that’s not just when dealing with Internet-only banks.

The consumer group said it found that neighborhood institutions often offered better rates to online customers than to branch customers, a strategy that rankles McEldowney.

“I think that’s really unfair for a bank to offer a higher rate for those who buy CDs online, rather than those who go into a branch,” he said. “It’s penalizing people who don’t have Internet access.”

Hall, the bankers association spokesman, defended the practice. Banks, he said, are simply passing on the savings from having to hire fewer tellers and pay less rent.

Those who are looking for the best rates will find that there are few substitutes for shopping around, which also is much easier on the Web.

“If you can go online, the shopping is already done for you,” said McEldowney, who recommends using BankRate.com. The site tracks average interest rates for a variety of products -- including loans and deposits -- and provides listings of dozens of banks offering the best rates.

A recent search on the site found that the average rate for a six-month CD was 4.6%, but several banks were offering 5% to 5.5%, as much as 0.9% more.

In dollars and cents, that means a consumer who got the best rate on a $100,000 CD earned $75 a month -- or $450 in six months -- more than a CD yielding the average would have paid. And that’s certainly worth the trouble.

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Kathy M. Kristof welcomes your comments, but regrets that she cannot respond to every question. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For her previous columns, visit latimes.com/kristof.