When you open a certificate of deposit (CD), you commit to leaving your funds in the account for a set term, ranging from a few months to several years. At the end of that term, known as the maturity date, you’ll need to decide what to do with your savings.
Understanding your options when a CD matures can help you make the most of your money, whether you choose to reinvest in a new CD, explore other savings options or use the money for a planned purchase. Here’s what you need to know about CD maturity and your next steps.
What happens when a CD matures?
As your CD’s maturity date approaches, your bank will typically send you a notification outlining your options. If you don’t provide instructions, most banks will automatically renew your CD for the same term at the current interest rate.
For example, if you had a one-year CD, your bank would likely roll it over into a new one-year CD at the existing rate.
However, this default renewal may not always be in your best interest. “The bank sets the new rates, which may or may not be competitive,” says certified financial planner Rich Arzaga, CFP, university instructor and founder of The Real Estate Whisperer in Monument, Colorado. “The easiest thing to do is let the CD roll over with the same bank. The banks know this and often create different products for new deposits and lower the yield for existing customers.”
To make sure you’re getting the best return on your savings, compare current CD rates and terms from multiple banks before deciding whether to renew or explore other options.
The grace period: Your window of opportunity
When your CD matures, you’ll typically have a brief grace period to withdraw your funds, add to your deposit or make other changes to your CD without incurring a penalty.
“If you aren’t quite sure what to do with the maturing CD proceeds and you need more time to decide, CDs usually have a 10-day grace period that begins after the CD matures,” says Juli Erhart-Graves, CFP and president of Worley Erhart-Graves in Indianapolis.
This window usually ranges from 5 to 14 days, depending on the bank and CD term. Here are some examples of grace period policies at major banks:
If you decide to cash out the renewed CD after the grace period has ended, however, expect to pay an early withdrawal penalty, which can be substantial.
Early withdrawal penalties for CDs vary widely. At Ally Bank, for example, the cost of an early exit from a two-year CD is 60 days’ worth of interest. But at Popular Direct, the early-withdrawal penalty for a two-year CD is 270 days’ worth of interest.
If you miss the grace period and need to access your money, you’ll likely face these penalties unless you’ve previously chosen a no-penalty CD.
Even if you forget about a maturing CD, you won’t lose your money. Your bank will hold your money for you, but the renewal terms may not be as favorable as other options. You could also miss the chance to move your funds to a higher-yielding account or other investment.
Options for a maturing CD
When a bank CD matures, you have several options:
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Renew your CD: You can let your CD automatically renew for the same term or choose a different term that better aligns with your goals. Keep in mind that interest rates may have changed since you first opened your CD.
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Open a new CD: Shop around for the best CD rates and terms. Look into factors like minimum deposits, early withdrawal penalties, and whether you prefer a traditional CD, no-penalty CD or bump-rate CD. Don’t feel obligated to stick with your current bank if you find a better deal elsewhere.
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Explore other savings accounts: If you need more liquidity or want to chase higher yields, consider moving your funds to a high-yield savings account or money market account. These options typically offer more flexibility and competitive interest rates.
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Consider other investments: Depending on your risk tolerance and goals, you may want to consider investing your CD funds in stocks, bonds or mutual funds for potential higher returns. However, keep in mind that these investments come with greater risk than CDs.
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Use the funds for planned expenses: If you timed your CD maturity to coincide with a specific goal, like a down payment on a home, you can withdraw the funds and use them as intended.
Expert tip: Create a CD ladder for flexibility
If you want to take advantage of higher rates on longer-term CDs but also want access to a portion of your money more frequently, consider building a CD ladder. By staggering the maturity dates of multiple CDs, you can enjoy both higher yields and increased liquidity.
Staying on top of CD maturity dates
When you open a CD, take note of the maturity date, and set up calendar alerts for both your CD’s maturity date is nearing (so you have time to decide what to do) and one for the actual maturity date (so you can take action such as withdrawing the funds).
Read the fine print and take note of how and when the bank provides notice of maturity as well as the length of the grace period. You should also make sure your contact information up to date with your financial institution.
Some banks, such as Ally, allow you to provide the bank with instructions in advance about what to do when the CD matures. Options may include changing terms, transferring money to or from the account or closing the account. Instructing the bank in advance means you won’t accidentally miss the grace period when the time comes.
Alternatives for low-maintenance savers
If you’re concerned that you might forget about your CD maturing or simply prefer a more hands-off approach, a savings account or money market account may suit you better. These accounts allow you to withdraw money at any time without penalties, and you may be able to find options that earn similar APYs to those of competitive CDs.
Opening a no-penalty CD is another option. These accounts allow you to withdraw your savings without a penalty, which can come in handy if you lose track of when your CD matures. Just note that, in return for the flexibility, a no-penalty CD often earns a lower rate than a traditional CD with the same term.
Bottom line
CDs are a low-risk investment, and many savers consider the guaranteed APY to be an attractive benefit. Since a CD locks in your money, it’s important to remember the maturity date, or to have effective reminders in place. This way, you’ll have time to do research and make a decision about what to do with your money when the CD’s term ends.
Whether you choose to renew your CD, explore other savings accounts or use the funds for a planned expense, taking an active role in managing your CDs can help you maximize your returns.
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