Does a CD Continue to Earn Interest After Maturity?

A Certificate of Deposit (CD) is a type of savings account that holds a fixed sum of money for a predetermined period, known as its term. These financial products typically offer a fixed interest rate, which remains constant throughout the CD’s term. A common question is what happens to a CD and its interest earnings once it reaches its maturity date, marking the end of its agreed-upon term.

The Maturity Process and Grace Period

When a Certificate of Deposit reaches its maturity date, you can access both your initial principal deposit and all the interest accrued over the CD’s term. Financial institutions generally provide a notification to CD holders as the maturity date approaches, outlining their available options.

Following the maturity date, a “grace period” typically begins, offering a short window of time for you to decide what to do with your funds without incurring penalties. This grace period usually lasts between 7 to 10 calendar days, though the exact duration can vary depending on the financial institution and the specific CD agreement.

Regarding interest accrual during the grace period, policies differ among banks. Some institutions may continue to pay interest on the funds up to the last full day before a withdrawal, while others might not pay interest for the grace period if the CD is simply cashed out. However, if you choose to renew the CD, some banks may then pay interest for the grace period.

Automatic Renewal and Interest Rates

A common practice among financial institutions is the automatic renewal of a Certificate of Deposit if the holder does not provide specific instructions during the grace period. When a CD automatically renews, it typically begins a new term that is often similar in length to the original CD term.

The interest rate applied to the new CD term is a key consideration. The renewed CD will earn interest at the prevailing rates offered by the financial institution for that specific CD product and term at the time of renewal. This means the original interest rate from your previous CD does not necessarily carry over; the new rate could be higher or lower depending on current market conditions. Interest on the renewed CD will accrue just as it would on any newly opened Certificate of Deposit, often compounded daily.

While automatic renewal is common, a less frequent scenario involves a CD that does not automatically renew and instead converts into a low-interest savings account. This outcome can significantly reduce your earnings, as savings accounts typically offer lower interest rates compared to CDs.

Your Choices After Maturity

Once your Certificate of Deposit matures, you have several distinct actions you can take to manage your funds, either during the grace period or by actively managing an automatically renewed CD. One straightforward option is to withdraw the funds entirely. This process involves liquidating the CD, allowing you to receive both your initial principal and all the interest earned during its term. Funds can typically be received through methods such as direct deposit into a linked bank account, a physical check, or an electronic transfer.

Alternatively, you can choose to reinvest the matured funds into a new Certificate of Deposit. This means opening an entirely new CD account with its own distinct terms, including a new interest rate based on current market conditions and a new maturity date. When reinvesting, you have the flexibility to select a different term length, such as a shorter-term CD for greater liquidity or a longer-term CD for potentially higher rates, aligning with your current financial objectives. This option allows your money to continue earning interest within a CD structure.

A third option is to transfer the matured funds to a different account or even a different financial institution. You can move the money to another type of account within the same bank, such as a savings or checking account, if you need more immediate access to your funds. Additionally, you have the flexibility to transfer the entire amount to a new financial institution if you find more favorable rates or services elsewhere. This allows for greater flexibility in managing your savings outside of the CD structure.