What to Do With a CD After It Matures

When a Certificate of Deposit (CD) reaches its maturity date, many individuals find themselves at a crossroads, unsure of the next steps for their savings. This moment presents an opportunity to re-evaluate financial goals and make informed decisions about the funds. Understanding the available choices and the process involved is important for managing your financial assets effectively.

Understanding CD Maturity

A CD reaches maturity when its predetermined term ends. On this date, the original principal and all accumulated interest become accessible. Financial institutions provide a grace period after the maturity date, typically 7 to 10 calendar days. This grace period allows the CD holder time to decide what to do with their funds before the bank takes a default action.

If no instructions are provided during this grace period, the financial institution will initiate an automatic rollover. This means the principal and accrued interest are automatically reinvested into a new CD with the same term length as the original, but at the current interest rate. Being aware of the maturity date and grace period helps avoid an unintended automatic rollover.

Exploring Your Options

Upon maturity, one primary option is to reinvest the funds into a new CD. This can involve rolling over the principal and interest into a new CD at the same financial institution, potentially with a different term length or interest rate. Alternatively, you might transfer the funds to a new financial institution if they offer more favorable terms. This strategy allows for continued interest earnings while maintaining the principal’s safety.

Another choice is to withdraw the funds entirely. This involves withdrawing the original principal and all interest earned over the CD’s term. The funds can then be deposited into a checking or savings account, providing immediate liquidity for spending or other financial needs. This option is suitable if the funds are needed for an upcoming expense or if you prefer to hold cash.

You can also transfer the matured CD funds to other investment vehicles. This could include moving the money to a high-yield savings account for greater liquidity and competitive interest rates, or into a money market account. For those seeking potentially higher returns, the funds could be transferred to a brokerage account to invest in stocks, bonds, or mutual funds, aligning with a broader investment strategy. Each option offers different levels of risk and potential return, catering to various financial objectives.

Executing Your Decision

To execute your decision, begin by reviewing the maturity notice sent by your financial institution, which arrives several weeks before the maturity date. This notice will confirm the maturity date, grace period, and often outline the default action if no instructions are received. Understanding these details is the first step in taking control of your matured CD.

During the grace period, communicate your intentions clearly to your financial institution. You can do this by contacting them directly, either in person at a branch, by phone, or through their online banking portal. Be prepared to provide identification and your CD account number to facilitate the process.

When providing instructions, be specific about your chosen action. If reinvesting, specify the new CD term length. If withdrawing, confirm the account for deposit or arrange for a check. For transfers to an external account, provide the routing and account numbers of the destination account. Acting promptly within the grace period ensures your decision is implemented as intended, avoiding an automatic rollover if that is not your preference.

Tax Implications

Interest earned on a Certificate of Deposit is taxable income in the year it is earned or credited to your account. This holds true regardless of whether you withdraw the interest, reinvest it into a new CD, or transfer the funds to another account. The financial institution will issue Form 1099-INT, “Interest Income,” to you and the Internal Revenue Service (IRS) for any interest earned exceeding $10. This form details the total interest income you received from the CD during the tax year. Include this income when filing your annual federal income tax return.