My CD Matured. Now What Are My Options?
Your CD has matured. Understand your choices and make informed decisions to optimize your savings for future goals.
A Certificate of Deposit (CD) is a type of savings account that holds a fixed amount of money for a fixed period. Financial institutions pay interest at a predetermined rate for the duration of this term, offering a predictable return.
When a CD “matures,” the fixed term concludes. The funds, including original principal and accumulated interest, become available. Financial institutions provide a grace period, usually seven to ten calendar days after maturity. This period allows the account holder to decide what action to take without penalty.
If no instructions are provided during this grace period, the financial institution will automatically renew the matured CD. This renewal is for the same term as the original, but at prevailing interest rates. Account holders should be aware of their CD’s maturity date and grace period to avoid unintended automatic renewal.
Options for Matured Funds
Upon CD maturity, account holders have several choices for managing their funds. One option is to reinvest the funds into a new CD, either with the same financial institution or a different one. This can involve selecting a CD with a different term length, such as a shorter period for greater liquidity or a longer period to lock in current rates. Some financial institutions offer specialized CD types, including callable CDs, which allow the issuer to redeem the CD before maturity, or step-up CDs, which feature interest rates that increase at predetermined intervals.
Another choice is to fully withdraw the funds. This option provides immediate access to the entire sum, allowing the account holder to use the money for immediate needs or other financial obligations. Withdrawal can be processed through various methods, such as a direct deposit into a linked checking or savings account, or by receiving a check.
Matured funds can also be transferred to other financial accounts. Funds can be moved to a high-yield savings account, which offers liquidity while still earning interest at a variable rate. Transferring funds to a money market account provides check-writing privileges and easy access to cash while earning a competitive interest rate. Funds might also be transferred to an investment brokerage account, enabling investment in assets like stocks, bonds, or mutual funds, aligning with long-term growth objectives.
Key Decision-Making Factors
Evaluating the current interest rate environment is a primary consideration when a CD matures. Prevailing rates for new CDs, high-yield savings accounts, and money market accounts should be compared against the interest rate earned on the recently matured CD. If current rates are higher, it may be advantageous to seek a new CD or other interest-bearing account that offers a more favorable return. Conversely, if rates have declined, locking in a new CD at a lower rate may not be the most appealing option.
Understanding one’s liquidity needs is another important factor. CDs limit access to funds without penalty before maturity. If there is a need for cash in the near future, such as for an emergency fund or a planned major purchase, opting for a more liquid account like a savings or money market account may be prudent. This ensures funds are readily accessible without incurring early withdrawal penalties.
The tax implications of the interest earned on a CD should also be considered. Interest income from CDs is subject to federal income tax, and state and local taxes, in the year it is earned, regardless of whether the funds are withdrawn or reinvested. Financial institutions report this income to the Internal Revenue Service (IRS) on Form 1099-INT, “Interest Income,” if the interest earned is $10 or more.
Inflation significantly impacts the purchasing power of money over time. If the interest rate earned on a CD, or a new account, does not keep pace with the rate of inflation, the real return on the investment will be negative. Evaluating options that offer returns greater than the inflation rate can help preserve the value of the funds. The decision should align with personal financial goals, such as saving for a down payment, building an emergency fund, or contributing to long-term retirement savings.
Executing Your Choice
After deciding on a course of action for matured CD funds, communicate this decision to the financial institution. Most institutions offer methods including visiting a local branch, contacting customer service by phone, or utilizing secure online banking portals. Have the CD account number and personal identification available to facilitate the process.
Clearly communicating the instruction is essential to ensure the financial institution processes the request accurately. Whether the decision is to reinvest, withdraw the balance, or transfer to a different account, explicit directions must be provided. For reinvestment, specify the desired new term length or type of CD. If withdrawing, indicate the preferred method, such as a direct deposit or check.
Following communication, obtain confirmation from the financial institution. For reinvestment, a confirmation statement detailing the terms of the new CD, including the interest rate and maturity date, should be provided. If funds are withdrawn, a receipt or transaction confirmation serves as proof. For transfers, documentation confirming the successful movement of funds will be issued.