What Happens When Your CD Reaches Maturity?

A Certificate of Deposit (CD) is a type of savings account that holds a fixed amount of money for a specific period, known as the term. In exchange for keeping the funds locked in for this term, the issuing bank typically pays a fixed interest rate, which is often higher than rates offered by traditional savings accounts. The CD maturity date marks the end of this agreed-upon term, at which point the principal invested and the accumulated interest become available to the account holder without penalty. This moment presents an opportunity for the CD holder to decide the next step for their funds.

Understanding Your Maturity Notice

As a CD approaches its maturity date, the financial institution typically sends a maturity notice to the account holder. This notice serves as a reminder and provides important details necessary for making an informed decision about the matured funds. The notice usually arrives several weeks before maturity.

This document contains key information such as the original maturity date of the CD and, if applicable, the new interest rate and term length for automatic renewal. It also specifies the length of the grace period. The notice outlines the various options available and provides instructions on how to communicate a decision to the bank, often including contact information for assistance.

Exploring Your Choices at Maturity

Upon a CD’s maturity, account holders generally have several options for their funds, each with different implications for their financial planning. One common choice is to renew or roll over the CD. This involves reinvesting the principal and any earned interest into a new CD, potentially for the same or a different term, at the current interest rates offered by the bank. Renewing can be convenient for those who do not need immediate access to their funds and wish to continue earning interest securely. However, the new interest rate may be higher or lower than the original rate, reflecting current market conditions.

Alternatively, a CD holder can choose to withdraw the funds. This option allows access to the original principal and all accumulated interest. Funds can typically be transferred to a linked checking or savings account, or a check may be issued. This choice is suitable if the funds are needed for immediate expenses or other investment opportunities.

A third option involves transferring the funds to another account or institution. This could mean moving the money to a different type of account within the same bank, such as a high-yield savings account, or transferring to an account at a different financial institution. This flexibility allows the CD holder to seek better rates or diversify their savings strategies.

Executing Your Decision

Once a decision is made regarding the matured CD, communicating this choice to the financial institution is the next step. The methods for informing the bank typically include using their online banking portal, contacting customer service via phone, or visiting a local branch in person. Some banks may also accept written instructions sent by mail.

When communicating a decision, the bank will generally require specific information to process the request. This includes the CD account number, the desired action (e.g., renew, withdraw, transfer), and, if renewing, the new term length. For transfers, details of the destination account, such as account numbers and routing numbers, will be necessary. It is important to act within the specified grace period to avoid default actions.

After the decision is communicated and processed, the bank typically provides a confirmation. The transfer of funds to a linked account typically takes one to three business days.

Automatic Renewal and Grace Periods

A grace period is a short window of time following a CD’s maturity date during which the account holder can make a decision about their funds without incurring penalties. This period typically ranges from 7 to 10 calendar days, though it can vary by institution and CD term. If no instructions are received during this grace period, the CD will commonly automatically renew.

Automatic renewal usually means the funds are reinvested into a new CD for the same term length as the original CD, at the current interest rate offered by the bank for that product. This default action can be convenient but may not always be advantageous, as the new interest rate might be lower than the previous one or less competitive than rates available elsewhere. If a CD automatically renews and the account holder later needs access to the funds before the new term ends, an early withdrawal penalty will likely apply. These penalties typically involve forfeiting a portion of the earned interest.