What to Do When Your CD Matures What to Do When Your CD Matures
When you put your money into a Certificate of Deposit, or CD, account you are getting a fixed interest rate for a set account term. CDs generally offer more competitive interest rates than standard savings accounts, with the caveat that you can't withdraw any of your funds until your account reaches maturity without incurring a fee.
When your CD account does reach its maturity date, you may wonder how to proceed. While you'll likely have several options, the best course of action will be determined by your individual financial circumstances and goals. Below, we'll explore the most common options available when your CD matures.
What is a Certificate of Deposit and How Does it Work?
As mentioned above, a Certificate of Deposit is an interest-bearing account with a fixed term ranging anywhere from a few months to five years (different financial institutions will offer different CD terms). Unlike with a traditional savings account, a CD account's fixed rate will remain unchanged for the account term. Generally, CDs with longer terms will offer higher fixed rates. Most CDs require that you leave your deposited funds untouched for the entirety of the account term unless you're willing to incur an early withdrawal penalty (more on that below).
What Happens When a CD Matures?
As you approach the maturity date for your CD account, your bank or credit union will likely send you a notification (usually by mail) outlining what your options are as well as the window of time you have to make a decision, also known as a grace period (we'll talk more about that in a minute). It's important to keep an eye out for this notification from your financial institution because if you miss it and fail to act during the account's grace period your options for what to do with your funds will be considerably more limited.
What is a CD Grace Period?
A CD grace period is the period of time following the account's maturity date where you can withdraw funds from the account without incurring an early withdrawal penalty. As mentioned above, in the weeks leading up to the maturity date for your CD, you can expect to receive notification from your bank outlining the specific dates that make up the grace period as well as some options for what to do with your funds now that your account has matured.
If you fall to act during the grace period, your financial institution may automatically renew your CD into an account with the same term as your previous account with a current interest rate. This could be better or worse than your previous rate depending on the financial landscape which is why it's so important to make an informed decision during the grace period. After your CD matures you could automatically end up with an interest rate that's lower than the initial rate you signed up for.
What Are Your Options When a CD Matures?
When your CD is approaching maturity and you receive notification from your bank, you'll have four general options to choose from:
1. Let Your Bank Automatically Renew Your Current CD Into a New CD
If you fail to act during your account's grace period once it reaches maturity, most banks will simply automatically renew your account into another CD with the same term as your previous account with an updated interest rate based on current financial conditions. This can be a good option if you want to keep growing your savings with another CD, and especially if interest rates have improved since you opened your first CD. At the very least, it's advisable to do some research to determine whether CD rates are still favorable before you allow your account to automatically renew.
2. Withdraw Your Funds and Deposit Them into a Different CD
If you do want to continue saving with a CD, this can also be a good time to shop around and see if other financial institutions offer more competitive rates. In addition to rate shopping, you may want to look at account features including minimum deposit requirements, early withdrawal penalties, and term options.
3. Withdraw Your Funds and Deposit Them into a Different Type of Account
When your CD matures, you may want to continue saving but decide that you need more regular access to your funds than a CD offers. If this is the case, you may want to consider other savings options like a high-yield savings account. High-yield savings accounts offer higher interest rates than traditional savings accounts, but unlike CDs they allow regular access to your initial investment without penalty. Other investment options include money market accounts, stocks, bonds, mutual funds, or retirement accounts like 401ks or IRAs.
4. Use Your Funds
When you open a CD, you may have a specific saving goal in mind like buying a house, a car, or saving for college. If you picked a CD term that coincides with when you need access to your funds then you can simply withdraw them when your account matures and put them to good use!
What If I Need Access to My Funds Before My CD Matures?
If you need to withdraw money from a CD before the account matures, you'll likely face an early withdrawal penalty. Banks and credit unions will stipulate in their account terms what fee they will assess if funds are withdrawn before a CD's maturity date. In most cases, these fees will be charged as several months' interest -- the longer the account term the more month's interest you could be assessed. If you're considering opening a CD but think you may need access to your funds before the account's maturity date, you may want to consider a no-penalty CD. This type of account is exactly what it sounds like -- a CD with low or no penalty for withdrawing your funds before the account's maturity date. The caveat with this type of account is that they commonly come with lower rates than traditional CDs.
How to Get Started With a CD
Leader Bank offers a range of Certificate of Deposit accounts with terms ranging from one month to five years. Opening an account can be done online and takes just a few minutes to get started!
