What Does It Mean When Your Savings Account Is Maturing?
Understand what happens when your Certificate of Deposit matures. Learn your choices and how to manage your funds effectively.
When a financial product in your portfolio is described as “maturing,” it refers to the completion of its set term, at which point the principal and accrued earnings become accessible. This concept almost exclusively applies to Certificates of Deposit (CDs), not typical savings accounts. If you hear this term in relation to your “savings account,” it is highly probable you hold a CD. This article explains what occurs when such an account reaches its maturity date and your available choices.
Understanding Account Maturity
A Certificate of Deposit (CD) is a type of savings product offered by banks and credit unions that holds a fixed amount of money for a fixed period of time, known as a “term.” Unlike a regular savings account, which offers flexibility for deposits and withdrawals, a CD locks in your funds for a predetermined duration, ranging from a few months to several years. In exchange for this commitment, CDs typically offer a fixed interest rate that is often higher than what a standard savings account provides, ensuring predictable earnings over the term.
The “maturity” of a CD signifies the conclusion of this fixed term. On the maturity date, your initial deposit, referred to as the principal, along with all the interest it has earned over the CD’s life, becomes available to you without penalty. Regular savings accounts, by contrast, do not have a fixed term or a maturity date; they are designed for ongoing access to funds and earn a variable interest rate, meaning they do not “mature” in the same way a CD does.
What Happens When Your Account Matures
As your Certificate of Deposit (CD) approaches its maturity date, your financial institution typically initiates a notification process to inform you. Financial institutions typically send written notice before a CD matures, especially for terms longer than one year. Many institutions provide this notification several weeks, often 14 to 30 days, before the maturity date, outlining your options.
Upon reaching its maturity date, your CD enters a “grace period.” This brief window, commonly 7 to 10 calendar days, allows you to decide what to do with your funds without penalty. If no instructions are provided during this grace period, the bank’s default action is usually an automatic rollover or renewal. This means the principal and accrued interest are reinvested into a new CD for the same term length, though the interest rate will likely reflect current market conditions.
Your Choices at Maturity
During the grace period following your CD’s maturity, you have several choices for your funds. One common option is to renew the CD, reinvesting the principal and earned interest into a new CD. You can choose to renew for the same term or select a different term length, and the interest rate for the new CD will be based on the rates offered by the bank at the time of renewal.
Alternatively, you can choose to withdraw the funds, taking possession of your original deposit plus all earned interest without penalty during the grace period. The bank can issue a check or transfer funds to another account, either within the same bank or to an external financial institution.
A further choice is to open a completely new CD. This allows you to explore different terms or potentially secure a higher interest rate from your current bank or another financial institution. Comparing current CD rates from various providers during your grace period can ensure your money continues to grow effectively.