What to Do When a Certificate of Deposit Matures
Your CD is maturing. Get clear guidance on understanding your choices and taking action to manage your funds effectively.
A Certificate of Deposit (CD) functions as a savings account where a fixed sum of money is held for a predetermined period, earning a fixed interest rate. When a CD reaches its maturity date, it signifies the end of its term, and the original principal amount plus any accrued interest becomes due to the account holder. Proactive decision-making at this stage is important to ensure continued growth of funds and to avoid any unintended automatic renewals. Understanding the options available at maturity helps maximize financial returns.
Understanding Your Maturity Notice
Financial institutions typically send a maturity notice to CD holders several weeks before the CD’s term concludes. This notice contains important information regarding the impending maturity. Key details to locate include the exact maturity date, which indicates when the CD term officially ends. The notice also specifies the grace period, usually ranging from seven to ten calendar days, during which you can make a decision about your funds without penalty.
The maturity notice often outlines the new interest rate that will apply if the CD is automatically renewed, along with the new term. Instructions on how to communicate your decision to the bank are also provided within this document. Carefully reviewing this notice allows you to understand the available timeline and the default action the institution will take if you do not provide instructions. The grace period is designed to give you time to consider your options without losing interest or incurring fees.
Your Primary Options at Maturity
Upon a CD’s maturity, account holders generally have three primary choices for their funds. One common option is to roll over, or reinvest, the funds into a new Certificate of Deposit. This can involve opening a new CD with the same term as the matured one, selecting a different term length, or choosing a CD with a potentially different interest rate offered at that time. Reinvesting allows the money to continue earning interest, often without interruption.
Another choice is to withdraw the funds, which means cashing out the CD and receiving the principal amount along with all accrued interest. Individuals might choose this option if they need immediate access to the money for expenses, wish to allocate the funds to a different investment vehicle, or simply no longer require the savings to be locked into a CD. This provides liquidity for financial needs or alternative opportunities.
The third main option involves transferring the funds to a different account or institution. This could mean moving the matured CD funds to a savings account, a money market account, or a checking account within the same financial institution. Alternatively, the funds can be transferred to an entirely different bank, credit union, or investment firm to pursue other financial products or services. This flexibility allows for consolidation or diversification of assets.
Steps for Each Option
If you decide to roll over your CD, you will typically need to contact your financial institution during the grace period. You can inform them of your desire to reinvest and specify the new term length you prefer, such as a six-month, one-year, or five-year CD. The bank representative will then confirm the prevailing interest rate for your chosen term and finalize the details of your new CD. A confirmation document for the new CD will usually be provided.
To withdraw your funds, you can often initiate the request in person at a branch, by phone, or sometimes through your online banking portal. You will need to specify how you wish to receive the funds, which could be via a check mailed to you, a direct transfer to a linked checking or savings account, or a cash withdrawal if visiting a branch. It is advisable to confirm the transfer or check issuance to ensure the funds are received as expected.
For transferring funds to another account or institution, you will need to provide the necessary account details for the destination. If transferring within the same institution, a simple internal transfer request is usually sufficient. For transfers to an external institution, you may need to provide routing and account numbers for the receiving account. It is prudent to verify the successful completion of the transfer with both institutions involved.
Key Financial Considerations
Interest earned on Certificates of Deposit is generally considered taxable income in the year it is credited or earned. This means that even if you roll over your CD, the interest accumulated from the matured CD may be subject to income tax for that tax year. Consulting with a tax professional can provide specific guidance tailored to your individual financial situation and help understand your obligations.
The prevailing interest rate environment significantly influences decisions at CD maturity. In a rising interest rate environment, reinvesting into a new CD might yield a higher return, while in a falling rate environment, locking in a rate might be less appealing. Conversely, if rates are expected to decline, securing a new CD rate before they drop further could be advantageous. Monitoring current market rates helps in making an informed decision.
Certificates of Deposit held at federally insured institutions are protected by the Federal Deposit Insurance Corporation (FDIC) up to specific limits, typically $250,000 per depositor, per insured bank, for each account ownership category. This insurance protects your principal and accrued interest against the failure of the financial institution. Aligning your CD decisions with your short-term and long-term financial objectives, such as saving for a down payment or retirement, is also important.
Your Primary Options at Maturity
Another choice is to withdraw the funds, which means cashing out the CD and receiving the principal amount along with all accrued interest. Individuals might choose this option if they need immediate access to the money for expenses, wish to allocate the funds to a different investment vehicle, or simply no longer require the savings to be locked into a CD. This provides liquidity for financial needs or alternative opportunities.
The third main option involves transferring the funds to a different account or institution. This could mean moving the matured CD funds to a savings account, a money market account, or a checking account within the same financial institution. Alternatively, the funds can be transferred to an entirely different bank, credit union, or investment firm to pursue other financial products or services. This flexibility allows for consolidation or diversification of assets.
Steps for Each Option
If you decide to roll over your CD, you will typically need to contact your financial institution during the grace period. You can inform them of your desire to reinvest and specify the new term length you prefer, such as a six-month, one-year, or five-year CD. The bank representative will then confirm the prevailing interest rate for your chosen term and finalize the details of your new CD. A confirmation document for the new CD will usually be provided.
To withdraw your funds, you can often initiate the request in person at a branch, by phone, or sometimes through your online banking portal. You will need to specify how you wish to receive the funds, which could be via a check mailed to you, a direct transfer to a linked checking or savings account, or a cash withdrawal if visiting a branch. It is advisable to confirm the transfer or check issuance to ensure the funds are received as expected.
For transferring funds to another account or institution, you will need to provide the necessary account details for the destination. If transferring within the same institution, a simple internal transfer request is usually sufficient. For transfers to an external institution, you may need to provide routing and account numbers for the receiving account. It is prudent to verify the successful completion of the transfer with both institutions involved.
Key Financial Considerations
Interest earned on Certificates of Deposit is generally considered taxable income in the year it is credited or earned. This means that even if you roll over your CD, the interest accumulated from the matured CD may be subject to income tax for that tax year. Consulting with a tax professional can provide specific guidance tailored to your individual financial situation and help understand your obligations.
The prevailing interest rate environment significantly influences decisions at CD maturity. In a rising interest rate environment, reinvesting into a new CD might yield a higher return, while in a falling rate environment, locking in a rate might be less appealing. Conversely, if rates are expected to decline, securing a new CD rate before they drop further could be advantageous. Monitoring current market rates helps in making an informed decision.
Certificates of Deposit held at federally insured institutions are protected by the Federal Deposit Insurance Corporation (FDIC) up to specific limits, typically $250,000 per depositor, per insured bank, for each account ownership category. This insurance protects your principal and accrued interest against the failure of the financial institution. Aligning your CD decisions with your short-term and long-term financial objectives, such as saving for a down payment or retirement, is also important.