Do Certificates of Deposit Expire? Here’s What Happens

A Certificate of Deposit (CD) offers a secure way to save money, functioning as a type of savings account where funds are held for a specific, fixed period. These accounts typically provide a fixed interest rate, which can be higher than traditional savings accounts, in exchange for keeping the money untouched for the agreed-upon term. CDs are generally considered a low-risk savings option, providing predictable returns. CDs do not “expire”; instead, they “mature.”

Understanding CD Maturity

A CD reaches its “maturity date” at the end of its predetermined fixed term. On this date, the initial principal amount invested, along with all accumulated interest, becomes fully accessible to the CD holder. Maturity signifies the conclusion of the investment period, making the funds available for use without penalty. Financial institutions typically send notifications as the maturity date approaches.

Following the maturity date, most CDs enter a “grace period,” a short window of time for the CD holder to decide what to do with their funds. This grace period usually ranges from 7 to 14 days, often 10 days, allowing for penalty-free action. If no instructions are provided, many financial institutions automatically roll over the funds into a new CD, typically with the same term length but at current interest rates.

Your Choices When a CD Matures

When a CD matures, several options become available for the funds. One common choice is to withdraw the funds, including both the principal and earned interest. This can involve transferring the money to a linked checking or savings account, or receiving a check, effectively closing the CD account.

Another choice is to roll over or renew the CD into a new one. This involves reinvesting the principal and often the accumulated interest into a new CD, which can be for the same term or a different duration. The interest rate for the new CD will be based on the rates offered at the time of renewal, which may differ from the original rate. While some institutions offer automatic rollover, actively managing this process ensures competitive terms.

CD holders also have the option to transfer their funds to a different type of account or to another financial institution. For instance, the money could be moved to a high-yield savings account if greater liquidity is desired, or to a new CD at a different bank offering more favorable rates. Interest earned on CDs is considered taxable income by the IRS and is typically reported annually on Form 1099-INT if the interest earned is $10 or more. This taxation applies in the year the interest is earned, even if the CD has not yet matured.

Accessing Funds Before Maturity

It is generally possible to access CD funds before the maturity date. However, this usually comes with an “early withdrawal penalty.” These penalties are typically calculated as a forfeiture of a certain number of months’ worth of interest, such as 90 to 365 days of interest, depending on the CD’s original term and the financial institution’s policies. If accrued interest is less than the penalty, a portion of the principal might be affected.

Some specialized CD products, such as “no-penalty” or “liquid” CDs, offer greater flexibility by allowing withdrawals before maturity without incurring a penalty. These CDs often permit full withdrawals after an initial funding period, commonly around seven days, though they may offer slightly lower interest rates compared to traditional CDs. Review the specific terms and conditions of any CD before opening to understand the early withdrawal rules and potential penalties.