What Do You Do When a CD Matures?

When a Certificate of Deposit (CD) reaches its maturity date, you, as the account holder, face an important decision regarding your funds. A CD is a savings tool where you deposit a fixed sum of money for a set period, earning a predetermined interest rate. This financial product provides a predictable return, making it a popular choice for low-risk growth. The maturity of a CD signifies the end of this agreed-upon term, at which point your initial deposit and accumulated interest become accessible.

Understanding CD Maturity and Its Implications

CD maturity marks the conclusion of the fixed term during which your money was held by the financial institution. On this date, the CD stops earning interest at its original rate, and the principal plus accrued interest become available. Following the maturity date, most CDs enter a “grace period,” a short window typically lasting between 7 and 10 days, during which you can make decisions about your funds without incurring penalties.

If no action is taken during this grace period, financial institutions commonly implement an automatic renewal or “rollover” of your CD. This means your funds will be reinvested into a new CD, usually for the same term length as the original, but at the current interest rates offered by the bank. The new rate may be higher or lower than your previous one, depending on the prevailing market conditions at the time of renewal. Once a CD automatically renews, accessing the funds before its new maturity date would typically incur early withdrawal penalties.

Available Choices for Your Maturing CD

Once your CD matures, you generally have three primary options for your funds.

One common choice is to reinvest or “roll over” the funds into a new CD. This can involve opening another CD with the same financial institution, potentially with the same or different terms, or even seeking a new CD at a different bank that offers more favorable rates. A strategy known as CD laddering involves investing in multiple CDs with staggered maturity dates, allowing for periodic access to funds while potentially benefiting from higher interest rates offered on longer terms.

Alternatively, you can choose to withdraw the principal and all earned interest from your matured CD. This option provides immediate access to your funds, which can then be used for spending, transferring to other accounts, or addressing immediate financial needs.

A third option involves transferring the funds to another account. This could mean moving the money to a savings account, checking account, or an investment account within the same financial institution or at a completely different one. This provides flexibility to manage your funds in a way that aligns with your current financial goals.

Factors to Weigh Before Deciding

Before making a decision about your maturing CD, considering the current interest rate environment is important. If interest rates have risen since you opened your original CD, reinvesting in a new CD might allow you to lock in a higher yield. Conversely, in a falling rate environment, you might consider other investment avenues or shorter-term CDs to maintain flexibility.

Your personal financial goals and liquidity needs also play a significant role in this decision. If you anticipate needing access to the funds in the short term, withdrawing them or transferring them to a more liquid account, such as a high-yield savings account, might be more suitable. For long-term savings objectives, reinvesting in another CD, possibly with a longer term, could continue to support your growth strategy.

It is important to understand the tax implications of the interest earned on your CD. Interest income from CDs is generally considered ordinary income and is taxable in the year it is credited, regardless of whether you withdraw or reinvest the funds. Financial institutions typically report interest earnings of $10 or more to the IRS on Form 1099-INT. Carefully reviewing the specific terms of your original CD agreement is essential, as it outlines details such as the exact length of the grace period, clauses for automatic renewal, and any specific requirements for notifying your bank of your decision.

Executing Your Decision: Steps at Maturity

To execute your decision regarding a maturing CD, the first step involves initiating contact with your financial institution. It is advisable to do this during the grace period, which typically begins the day after your CD’s maturity date and usually lasts between 7 and 10 days. You can generally communicate your instructions via phone, through an online banking portal, or by visiting a branch in person. Many banks send a maturity notice approximately 20-30 days before the CD matures, outlining your options and providing instructions.

When communicating your choice to the bank, be specific about your desired action. If you choose to reinvest, specify the terms of the new CD, such as the desired duration (e.g., 6 months, 1 year, 5 years) and whether you wish to add additional funds if permitted by the bank’s policy. If you are rolling over into the same terms, simply instructing the bank to renew the CD is usually sufficient.

For withdrawal, clearly state that you wish to close the CD and receive the funds. You will need to specify how you want to receive the money, such as a transfer to a linked checking or savings account, or a physical check mailed to your address. Some institutions allow online closure and transfer to an internal account. If you are transferring funds to another account or institution, provide the necessary account numbers and routing information for a smooth transfer.

Depending on the institution and the type of transaction, you may need to provide identification, such as a government-issued ID, and your CD account number. After communicating your decision, expect to receive a confirmation from your bank, and note the timeline for funds availability or the start of your new CD term.