I recently noted in an audit that our 7 day auto renewal CD has a 10 grace period for withdrawal without penalty. So the CD is in a perpetual grace period after the first 7 days.

We would like to limit that grace period to 1 day. Can this be done via a change in terms or is the only way to have the customer close out the CD and open a new one under the new term?

Actually, since we closed on Sat. and Sun. should the reduced grace period be at least 3 days so that at least one if a business day?

Not really an answer to your question....

But we have avoided this issue by making any issued CD that is less than 3 months nonrenewable. We do have a 7 day CD, used basically for IRA rollovers from investment firms. But after maturity, they simply sit stagnant and do not draw interest. In this manner, the customer can come in at any time and withdraw the funds without a penalty.

Not sure what the issue is. There does not have to be a grace period, it is just allowed. Any withdrawal can be backdated to the last maturity and you can even apply more draconian early withdrawal penalties if you choose.