What Happens to a CD When It Matures?
Your Certificate of Deposit has matured. Understand the next steps, your choices, and how to make the best decision for your savings.
A Certificate of Deposit (CD) is a savings account where a fixed sum is deposited for a predetermined term at a fixed interest rate. CDs are low-risk, as funds are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per institution. They offer a predictable and stable return, typically with higher interest rates than standard savings accounts, in exchange for limited access to funds until the term concludes. The maturity date marks the end of this term.
Understanding the Maturity Process
As a CD approaches its maturity date, financial institutions commonly send notifications to account holders. These alerts outline the impending maturity and the options available for the funds.
Upon reaching the maturity date, a “grace period” begins. This period typically lasts between 7 to 10 days, though it can vary by bank and the CD’s original term. Its purpose is to provide a window of opportunity to decide what to do with your money without incurring penalties.
If no action is taken during this timeframe, most CDs automatically renew for a similar term at the current prevailing interest rate. It is advisable to review your CD agreement, as policies can differ among institutions.
Options for Your Matured CD
When a CD matures, account holders have several choices for their funds. One common outcome, if no specific instructions are provided during the grace period, is an automatic rollover. The principal and any accrued interest are reinvested into a new CD, usually for a term similar to the original one, at the bank’s current interest rate. This new rate may be higher or lower than the previous one, reflecting prevailing market conditions.
Alternatively, you can opt for a full withdrawal of your funds. You can take out your principal and all interest earned over the CD’s term. Common methods for accessing these funds include a direct transfer to a linked checking or savings account, receiving a check, or an electronic funds transfer. Once the full amount is withdrawn, the CD account is typically closed.
A third option is actively reinvesting your money into a new CD. This differs from an automatic rollover because it allows you to choose new terms, such as a different duration, or to seek a potentially better interest rate. You are not obligated to open the new CD with the same financial institution; you can explore rates and terms offered by other banks or credit unions to find one that best suits your financial goals, giving you greater control over your investment strategy.
Making Your Decision
When a CD matures, several factors should influence your decision on how to proceed with the funds. The current interest rate environment is a significant consideration; if rates are rising, you might consider a shorter-term CD or withdrawing funds to seek higher rates elsewhere, while falling rates might encourage locking in a rate with a new CD. For example, as of August 2025, top CD rates are around mid-4%.
Evaluating your liquidity needs is also important, as CDs typically impose penalties for early withdrawals outside the grace period. If you anticipate needing access to your money in the near future, a full withdrawal or investing in a more liquid account, like a high-yield savings account, might be suitable.
Aligning your CD decision with your broader financial goals is also important. Whether saving for a down payment, retirement, or an emergency fund, your CD strategy should support these objectives. This might involve reinvesting for long-term growth or using the funds for a planned expense.
Comparison shopping for current CD rates across various financial institutions is recommended to ensure you secure the most favorable return. Rates can vary significantly, and exploring options beyond your current bank can yield better opportunities.
Tax Implications
Understanding the tax implications of CD interest is important. Interest earned on CDs is generally considered taxable income by the IRS, regardless of whether it’s received in cash or reinvested. For CDs with terms longer than one year, interest is typically reported and taxed annually as it accrues, even if the funds are not accessible until maturity. Financial institutions will usually issue a Form 1099-INT if you’ve earned $10 or more in interest during the year, which reports the taxable amount. This interest is taxed at your ordinary income tax rate.