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What to do with a CD when it matures

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Once you've made the decision to put money into a certificate of deposit, you've got another to make: what to do with your CD when it matures.

It would be easy to forget you have money locked away at all; some CD terms stretch to five or even 10 years. But once that term is over, you have a brief window — in some cases only a few days — before the bank makes the decision for you.

Here are options to consider when your CD matures and what happens if you don't act.

How a certificate of deposit works

A certificate of deposit is a special type of savings account you can use to grow your money at a potentially faster rate. When you deposit your cash into a CD (called a share certificate at a credit union), you agree to leave the money in the bank for a set time. In return, your CD typically offers a higher interest rate than you would earn with a regular savings account.

The length of time that you leave your money in a CD is called its term. CD investments feature a variety of term options from one month to five years or longer. When your CD’s term is complete, the account reaches what’s known as its maturity date.

If you withdraw cash from your CD before its maturity date, your bank may charge you an early withdrawal penalty. This penalty could offset, and in some cases nullify, the interest you earned on your account.

What happens when a CD matures?

Your bank or credit union should send you a notice when your CD matures.

However, as a CD owner, it’s your responsibility to know the maturity date of your account as well. It’s wise to schedule reminders on your smartphone, digital calendar, planner, and anywhere else you can think of to stay aware of when your CD maturity date is drawing near.

Some CDs will pay out the interest you earn on your account at regular intervals (e.g., once a month or once a year) throughout the term of your account. Other CDs might hold the interest you earn in your account until its maturity date. With the latter option, your CD has the value of your initial deposit, plus any unpaid interest it has accrued at the end of the term.

In most cases, you’ll have a brief period during which you can make a decision about what to do with the cash that’s available from your mature CD. If you don’t make a choice on your own before the grace period expires, your bank or credit union might decide for you.

How a CD grace period works

A CD grace period is a window of time during which you can withdraw the cash from your now-mature certificate of deposit account without incurring penalties. CD grace periods begin at the end of a CD’s term and often last around two weeks or less. However, you should check the terms and conditions of your account for specific details since some grace periods can be shorter.

If you fail to take action within your grace period, your financial institution may automatically renew your CD. Often, a renewal CD has the same term as your original account, but the interest rate on your new CD could be lower or higher compared with your previous account, depending on the current rates the bank is offering. Again, it’s important to confirm these details with your financial institution.

While you might want to let your bank or credit union renew your CD, it’s still important to review your options before you allow a rollover to take place. Even if you want to keep your cash in a new CD and you’re fine with the same term, you should always compare your options first.

Click the image to compare CDs
Click to compare CDs

What else can you do with your money?

An automatic CD renewal might be the most convenient solution when it comes to what to do with your cash when your certificate of deposit reaches maturity. But you have other options where your money is concerned as well, such as the following.

  • Open a CD with a different bank. Before you let your bank automatically renew your CD, compare CD rates at other financial institutions so you can earn the highest-possible return.

  • Consider a different type of deposit account. Compare rates and other benefits from multiple financial institutions to find the most suitable account. If you want easier access to your money, a high-yield savings account might make more sense. If you want a high APY and check-writing privileges, you could consider a money market account.

  • Choose alternative investments. If your priorities have shifted, you might want to pursue other investments such as mutual funds, IRAs, stocks, or bonds. Market investments are riskier than CDs while also offering the potential for higher returns. Think about getting advice from a professional financial adviser if you're considering these kinds of investments.

  • Use the cash for something else. People often use CDs to save for a specific purpose, like a down payment on a home, a wedding, or some other big-ticket purchase. Or perhaps you might want to use some or all of the cash in your CD to pay down high-interest debt. In either case, it’s important to act before your CD auto-renews.