What to do when your CD matures – Forbes Advisor


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When deciding to put money in a certificate of deposit (CD), consider what happens after the CD matures. Certificates of deposit are term deposits with specific terms, such as six months or five years. You get a guaranteed fixed interest rate as long as you hold the CD and don’t touch the money.

However, once your CD reaches its maturity date, you have a decision to make: what do you want to do next with the money from your CD?

Here are some steps to take and things to consider that can help you decide what to do when your CD matures.

Know the expiration date of your CD

As the owner of a CD, you are responsible for knowing its expiration date. Mark it on your calendar, set reminders, or do whatever else you need to remember this date so you can adjust your plans accordingly. Check with your bank or credit union if you have questions about your CD’s expiration date. The institution will send you a notice before your CD expires.

The maturity date is usually the only time you can withdraw funds from your CD without incurring an early withdrawal penalty, unless you have a penalty-free CD.

What happens when a CD matures

When a CD reaches its expiration date, expect a notice from your financial institution. Your bank or credit union must give you written notice of your CD’s expiration date to let you know that your CD is about to expire.

Once you have received the maturity notice, you can collect your invested principal and the interest earned. You can also choose to open a new CD in the same establishment.

Many banks and credit unions also offer a rollover or renewal feature for CDs. If you choose this option, the money you originally invested, and often your earned interest, will be deposited onto a new CD.

Know Your CD Grace Period

Once your CD reaches its maturity date, you have a short period of time called a grace period during which you can withdraw your money from the CD or place the money on a new CD. Grace varies by institution. While many banks and credit unions offer a 10-day grace period, others may offer less.

In addition to knowing your expiration date, keep track of your CD’s grace period. Ideally, decide what you want to do with the CD long before it matures.

What is CD renewal?

If you don’t withdraw money from the CD after its maturity date, some CDs are set to automatically renew after a grace period. Generally, it is for the same term, but the interest rate may be higher or lower. This is why it is important to note the expiration date of your CD. Before allowing your CD to renew or auto-renew, compare prices. You may be able to get a better rate and term.

To determine if your CD is eligible for auto-renewal, read the fine print of your bank or credit union’s terms and conditions or depository agreement.

Decide what to do with your matured CD money

Once your CD matures and you are in the grace period, you have a few options for what to do with the money from the CD:

  1. Close the CD, remove the money and use the money elsewhere.
  2. Put the money in a different CD with a different term and APY.
  3. Let the CD auto-renew for the same amount of time (keep in mind that the APY may be higher or lower than it was on the previous CD).

Know what happens if you don’t act

If you do nothing, the bank may automatically renew your CD for the same term you had before, regardless of the current APY rate for CDs of that term.

There are risks of doing nothing with your matured CD:

  • You might be stuck with a longer duration than you want. For example, if your previous CD had a term of three years, an automatically renewed CD locks you into another three-year commitment. If you want to withdraw your money from the new CD, you will probably have to pay an early withdrawal penalty.
  • You might miss higher rates. In 2022, interest rates on CDs have increased. If you bought a CD a few years ago during a time of low interest rates, you might be surprised at how well the best CDs pay in today’s environment.

Don’t let your money get out of your control. Take advantage of the grace period to make the right choice with your savings. If you’re happy with term lengths and APYs with CDs, consider putting your money in another CD. Make sure the decision is deliberate, well-informed, and based on your larger financial goals.

Determine your overall financial goals for this money

If you are considering investing in certificates of deposit, do so strategically as part of your overall savings plan. Each time a CD comes due, it’s an opportunity to reevaluate your financial goals and put that money into a different savings account or investment, depending on your financial situation.

Here are some questions to consider as your CD matures:

  • Have interest rates gone up or down since you bought the CD? You may be able to get a higher APY on a CD from another bank or with an online high-yield savings account that gives you the same FDIC-backed protection as a CD, but with no time commitment. . Check out the best CD rates and savings accounts online to compare your options.
  • Have your goals changed? Consider where you would like to use the money. Perhaps you would like to use it to bolster your savings for emergencies, retirement, or a down payment for the home.
  • How long do you want to commit your money to a CD? Depending on the APYs and your financial goals, you might be better off with a short- or long-term CD.
  • Are you still satisfied with the APYs available on CD? If you can tolerate more risk with this money, you may want to consider investing some of the funds in higher risk but potentially higher return investments.

Build a CD ladder

If you like the security and stability of this savings vehicle and are happy with the APYs, another option after your CD matures is to invest more money in CDs by building a CD ladder. This allows you to capitalize on interest rate changes, avoid early withdrawal penalties, and save for different financial goals.

You can purchase multiple CDs with different expiration dates to create a CD ladder. With a CD ladder, you assemble a series of CDs so that a CD due date is never too far in the future, giving you more flexibility, even with fixed terms.

Find the best CD prices of 2022

Conclusion

If you have a CD nearing its expiration date, start planning now what you want to do next with that money. If you want, you can leave the money alone and let the CD auto-renew for the same duration at the current APY. But this can be risky as you could end up with a lower or longer term APY than you would like. Make sure you understand your options and make the right choice for your overall savings plan.

Frequently Asked Questions (FAQ)

How long does it take to redeem a CD?

The time it takes to cash in a CD varies by institution. You may be able to receive a check in the mail or request a direct deposit to another account you have at the same institution.

Your bank or credit union may recommend that you visit a branch or call a banker to discuss your options.

Is it possible to lose money on a CD?

CDs are generally considered one of the safest places to keep your money because they pay a fixed interest rate and are federally insured. CDs are generally insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to the limits governing each account, making CDs a very low risk investment.

Is the CD ladder worth it?

It depends on your savings goals. Generally, CD ladders can help you increase your cash flow while taking advantage of rising interest rates. CD laddering can take extra time and effort, but it can help you diversify your savings to potentially earn more interest and better flexibility in where to put your money.


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