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One of the most attractive features of a certificate of deposit (CD) account is safety and stability. When you open a CD, you agree to a fixed interest rate and account term, so you know from the outset how much you'll earn and how long your money needs to stay where it is.
When your CD reaches maturity at the end of its agreed-upon term, however, you'll quickly have to decide what to do with it next. You have a few basic options when your CD matures: Leave your money where it is, move it to a new account, spend it or put it toward long-term goals. If you're staring down your CD's moment of maturity, here are a few things to think about as you consider your options.
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What Happens When a CD Matures?
When a CD matures, your money becomes available for you to withdraw or move into another account. When you open a CD, you agree to keep your money in the account for a set period of time in exchange for a fixed rate of interest. If you want to withdraw the money before your CD's term is up, you typically forfeit some of your interest earnings as an early withdrawal penalty.
Automatic Renewal
Many CDs have a feature that automatically renews your account at maturity by rolling your funds (including interest) into a new CD. Your new CD may have the same term (six months, one year, three years or whatever your original CD had) but at the current interest rate. If you do nothing when your CD matures, your account may renew automatically. This may not be a disaster, but it could represent a missed opportunity.
New Options
When your CD matures, you can also consider new alternatives, including adding money to your CD balance, changing the term of your CD, shopping for a better interest rate or moving your money to a new type of account. You may want your funds to be more accessible, without the withdrawal restrictions CDs typically have. Or you may want to put your funds into a tax-advantaged account like a 529 educational savings account or IRA.
What Is a CD Grace Period?
When your CD matures, you typically have a grace period of seven to 10 days to decide what to do with your money—before your funds automatically renew or the bank writes you a check for the balance. This is your chance to be proactive.
For every CD you own, note the maturity date and grace period on your calendar. That way, you'll have time to start thinking about your options well in advance. Your financial institution will send you a letter when your CD is about to mature, but it may be better to track this information on your own so you're ready to act when your CD matures and the clock starts ticking on your grace period.
What Happens if You Miss Your CD Grace Period?
Each bank may handle this situation differently. Your bank or credit union might send you a check for the account balance, including interest. It might hold your funds in the account with or without paying interest. Or your CD might auto-renew, which could mean having to pay an early withdrawal penalty if you want to access your money before the new CD term ends.
What to Do With a CD When It Matures
The most important step to take when your CD matures is to rethink your options. You may decide that your money is best kept exactly where it is—in a renewed CD at the same bank or credit union. But why not arrive at that decision after checking around for better interest rates and terms, considering alternatives like high-yield savings or money market accounts, or re-evaluating long-term goals like college savings or retirement? You won't know what's best if you don't know what's out there.
Here are a few alternatives worth a look, especially if economic factors—or your personal priorities—have changed.
- Renew your CD or let it auto-renew. If you're happy to get more of the same deal, you can leave your funds where they are.
- Roll your money into a new CD. You can also choose a different term, add or subtract funds or choose the best CD at another financial institution.
- Move your money into a money market account. Money market accounts also pay interest on your balance, but you can access your money at any time. Many money markets come with check-writing or debit cards to make transacting easy, though most also limit the number of transactions you can make.
- Switch to a high-yield savings account. True to their name, high-yield savings accounts pay higher interest than a regular savings account would, and they don't have the time limitations of a CD. Interest may be variable, though, so a high interest rate today might be lower in a year or two.
- Consider investing it. If you're comfortable with more risk and are looking for a longer-term investment, you might try your hand at investing your funds in stocks, bonds, mutual funds or ETFs.
- Start a college savings account. Your money grows tax-free in a 529 educational account based on the investments you choose; withdrawals are also tax-free if you use the money for qualified educational expenses.
- Open or contribute to an IRA or Roth IRA. Funding your retirement is a worthy goal and you'll see tax benefits along the way.
- Take the cash. Finally, you can withdraw your money and spend it, use it for a down payment on a house, pay down debt or otherwise put it to good use. It's your money.
The Bottom Line
If you have a CD that's approaching maturity, give yourself a pat on the back for saving money successfully. Planning ahead for maturity day gives you the opportunity to optimize returns on your savings and remind yourself that it's good to engage with your finances. Learning about current interest rates, researching different kinds of accounts, and thinking about investing or retirement goals are all part of active money management—a practice that's good for you and your money.