When a CD Matures, What Are Your Options?

A Certificate of Deposit (CD) is a type of savings account that holds a fixed amount of money for a fixed period, earning a fixed or variable interest rate. Unlike a regular savings account, you generally cannot access the funds until the CD’s term ends without incurring a penalty. The term “maturity” refers to the specific date when this fixed period concludes, making your principal and accumulated interest available.

Automatic Actions at Maturity

When a CD matures, financial institutions often have a default action if the owner does not provide specific instructions. A common practice is “automatic rollover,” where the principal and any accrued interest are automatically reinvested into a new CD. This new CD is typically for the same term as the original, but at the prevailing interest rate offered by the institution at that time.

Most financial institutions provide a “grace period” immediately following the maturity date, commonly ranging from seven to ten calendar days. During this window, the CD owner can withdraw funds or issue new instructions without incurring early withdrawal penalties. If no action is taken by the end of this grace period, the automatic rollover process will finalize. Institutions are required to send a maturity notice to the CD holder 30 to 60 days in advance, outlining these actions and the grace period.

Your Choices at Maturity

Upon a CD’s maturity, account holders have several options beyond allowing an automatic rollover. One common choice is to withdraw the funds entirely, which includes both the original principal and all accumulated interest. Funds can typically be transferred to a linked checking or savings account via an Automated Clearing House (ACH) transfer, or a check may be issued and mailed to the account holder. This option provides immediate access to the funds for other financial needs or investments.

Another option is to reinvest the matured funds into a new Certificate of Deposit at the same financial institution. When reinvesting, you can choose a new term (shorter, longer, or identical to the original CD), and the interest rate will be based on current offerings. Some institutions may also offer different types of CDs, such as “no-penalty CDs” (allowing withdrawals before maturity without penalty) or “jumbo CDs” (offering higher rates for larger deposits). Compare interest rates from your current institution with other providers to ensure a competitive return.

Alternatively, you may choose to transfer the matured funds to a different type of account or investment vehicle. This could involve moving the money into a high-yield savings account for greater liquidity, or into a money market account for potentially higher, though variable, returns. Funds can also be transferred to a brokerage account to be invested in stocks, bonds, mutual funds, or other securities, aligning with a broader investment strategy. This flexibility allows you to adapt your financial holdings to current market conditions and personal financial goals.

Tax Considerations

Interest earned on a Certificate of Deposit is taxable income by the Internal Revenue Service (IRS). This income is taxed in the year it is credited to your account or made available to you, regardless of whether you withdraw the funds or reinvest them. For instance, if interest accrues annually, it is taxable in the year it is made available, even if the CD does not mature until a later year.

Financial institutions are required to report interest income to the IRS and to the CD holder. If you earn $10 or more in interest during a calendar year, your bank will issue Form 1099-INT, “Interest Income,” which details the total interest paid to you. You will use this information to report the interest income on your annual federal income tax return.

There are exceptions to this rule, particularly for CDs held within tax-advantaged retirement accounts. For example, a CD held within an Individual Retirement Arrangement (IRA) or a 401(k) plan grows on a tax-deferred basis. This means interest earned is not taxed annually but rather upon withdrawal during retirement, following the rules governing those retirement accounts.