How To Renew a Certificate of Deposit (CD) & 3 Alternatives To Consider

Article Summary:

Renewing a certificate of deposit is both an intentional savings strategy and a default event. When your CD matures, you can either withdraw, reinvest, or renew. Most financial institutions will automatically renew a CD if the account holder doesn’t take action within a seven- to 10-day grace period. It’s up to you to decide the best way to handle your CD funds.

Investing in a certificate of deposit is good and well, but what do you do with it when it matures? CD renewal is one way to go, but it’s not the only way. Take control of your finances and educate yourself on your investment options. If you’re going to let the account automatically renew, make sure you know what that means. Keep reading to learn all about how to renew a certificate of deposit.

Understanding your CD’s maturity date

When you open a CD account, you choose the CD term length. Typically, longer terms come with higher APYs (annual percentage yields). Once you create the account and deposit funds into it, you’re obligated to hold the money in the savings account for the length of the term. Most CDs impose early withdrawal penalties if you want to access the money before the end of the term.

Want to know more about CDs? Learn more about certificates of deposit with SuperMoney.

What happens when a CD matures?

CD terms range between three months and five years. You can’t withdraw funds from the account during that time without paying a penalty unless it’s a liquid CD.

If a CD term is longer than one year, the Truth in Savings Act requires that the financial institution send notice to the account holder before the end of the term. On the CD term end date, otherwise known as the CD’s maturity date, you can access the funds penalty-free.

However, that doesn’t last forever. Most CDs have a grace period during which you are free to do with them what you want. These CD grace periods typically last for seven to 10 days. Check with your financial institution to confirm the length of your grace period.

How to renew a CD

You have two main options when it comes to renewing a CD account:

  1. Do nothing and let the CD issuer renew your account automatically. Just wait until that grace period ends, and you’ll see your CD automatically renew.
  2. Withdraw your CD balance within the grace period and open a new CD account on your own. This is a good idea if automatic renewal isn’t an option, you have found another CD with higher rates, or if you want to add more funds to it. Otherwise, there’s no reason to manually renew your CD.

Although most financial institutions will usually renew automatically if you do nothing when your CD reaches its maturity date,  it’s smart to check your options. Check with your provider to make sure you know what rules and conditions apply to you. You may qualify for a CD (or another investment product) with better rates and terms.

What to do at CD maturity

When a CD matures, you have three options during that grace period:

  1. Withdraw: Deposit your CD’s principal investment and interest earnings into your bank account. Put them toward your next big purchase or anything else.
  2. Reinvest: Withdraw your CD funds without penalty and reinvest them in another CD or other investments.
  3. Renew: Rollover the CD balance into a new CD of the same term at a new interest rate — whatever APY your bank or credit union currently offers.

What if I do nothing when my CD matures?

If you do nothing when your CD matures, and its grace period ends, most financial institutions automatically renew your CD. This process is often called automatic renewal or automatic rollover.

Not all banks and credit unions do this, however. Some banks and credit unions transfer the funds into another type of account or allow you to opt out of automatic rollover or renewal when you open the account. Check your bank’s policy and read the fine print to see if this is the case for you.

Automatic renewal just means that your matured CD balance transfers into a new CD. Be aware that the new CD likely won’t have the same interest rate as your last one. It will, however, have the same term length. Banks and credit unions change their interest rate offerings often, so you should expect a different APY for the same term.

Once your CD auto-renews, your funds are locked in again for that term. This means you are no longer able to withdraw the funds penalty-free. That’s why it’s so important to keep track of your CD’s maturity and align its liquidity with your financial goals.

Pro tip

When you open a CD account, set a reminder for yourself of its maturity date. Five years or even six months leave you a long time to forget about the account since it doesn’t require any attention.

Why renew a certificate of deposit?

Reasons to renew a CD match closely with those for opening a new one. After all, renewing a CD means opening a new one anyway.

The only difference between your first CD and your renewed CD is that it has more money than when you first opened it. Over the previous term, you earned interest that you get to put toward earning more interest.

CD account holders commonly choose to renew for a few reasons:

  • They don’t need the funds liquid at this time, and they can afford to keep them locked away for another term.
  • Their financial institution is currently offering high interest rates, and they want to take advantage of them.
  • They want their money to keep compounding for another term without having to do any work to reinvest it elsewhere.

Pro tip

When opening a CD, you can choose whether to receive interest payments in periodic disbursements or keep all the interest earnings in the CD account throughout the term. Many people choose the latter because it compounds their return on investment.

Pros and cons of renewing a CD

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • New CD rates: Your renewed CD is subject to your provider’s current APY offerings. There’s a chance that the new interest rates are higher than when you opened the original account. This means you’ll earn more interest this time around. However, it’s not guaranteed and is dependent on the current economic environment.
  • Convenience: In most cases, renewing your CD requires zero action. It’s simple and easy to automatically roll over your CD.
Cons
  • New CD rates: Interest rates can also drop. If you happen to renew your CD at a time when interest rates are lower, you’re missing out on earnings. Similarly, other providers or deposit accounts might have higher rates than your current one. Just because they had the most competitive rate when you originally opened the CD doesn’t mean that’s the case now.
  • Inflation: If inflation rates outpace your interest rate, your money will lose value as it sits in the CD for another term. This risk applies to most savings accounts, not just CDs.
  • Liquidity: Renewing your CD locks up your funds for another life cycle. If you foresee yourself needing the funds soon, you may want to consider another more liquid investment.

3 Alternatives to renewing a CD

Renewing is a great option, but it’s not the only option. Another investment method could better align with your financial goals. Consider these alternatives to renewing a certificate of deposit.

1. Reinvest into another CD

You don’t have to accept the fate of renewing your CD. Instead, you can put those funds into another CD with a better interest rate and different term. Assess your investment time horizon and which term best aligns with that. Don’t be afraid to look outside of your current provider. Another financial institution might have better rates and opportunities.

SuperMoney is here to help you find the best CD accounts out there. Our thorough and objective CD account comparison tools help you find exactly what you need.

2. Invest in another savings account

Certificates of deposit aren’t the only way to earn interest on your savings. You may also want to consider putting your money into a high-yield savings account, savings bond, or money market account. Each comes with its own perks.

Consider money market accounts versus CDs to see which best fits your financial goals. Putting your savings in such a liquid account may leave you open to more opportunities to increase your returns. Utilize SuperMoney’s money market account comparison tools to learn more.

3. Invest in other assets

Investing in assets such as stocks, cryptocurrency, or real estate is riskier. However, with higher risk comes the potential for much higher returns.

For example, the S&P 500 saw a 28.47% annual return on investment in 2021. That beats the typical 3–3.5% APY of a 1-year CD. On the other hand, the annual return on investment of the S&P 500 in 2014 was -4.23%. That year, a CD would’ve earned you more money.

Conclusion: renew or find something new?

Do your research, determine your risk tolerance, and weigh your investment options before jumping into a CD renewal.

FAQ

Do certificates of deposit automatically renew?

Most certificates of deposit automatically renew. However, it’s best not to assume. Check your bank’s policy for their auto-renewal terms and conditions.

Can you renew a CD account?

Yes, you can renew a CD account. Usually, it will automatically renew without your having to do anything.

What happens when a certificate of deposit expires?

When a certificate of deposit expires, you can withdraw or reinvest your funds penalty free. If you do neither of those, the CD will typically renew automatically after seven to 10 days.

What happens if I don’t renew my CD?

You aren’t obligated to renew your CD as long as you act within the seven- to 10-day grace period after its maturity date. If you don’t want to renew your CD, be sure to withdraw your balance before the grace period ends and it automatically renews.

How long can you leave money in a CD?

This depends on the CD’s term. Typical CD terms range from three months to five years. You’ll choose your CD term when opening the account. Longer terms usually come with higher interest rates.

How many days do you have to renew a CD?

You usually have a seven- to 10-day grace period to either withdraw or reinvest your CD funds after the CD matures. If you want to renew, and your CD provider offers automatic renewal, you don’t have to do anything. The account will automatically roll over into a new CD with a similar term and updated rate.

Key takeaways

  • When your CD matures, you have a few options including withdrawing your money, reinvesting your funds in a new account, or simply renewing the existing CD.
  • Decide what you want to do by the end of your seven- to 10-day CD grace period. After that, your CD may automatically renew.
  • If you decide you want to renew your CD, you can just let it automatically renew on its own. Check with your provider to make sure they indeed offer automatic renewals.

Last word: CD versatility

CDs are versatile. You can use them to save for a variety of purposes. Learn how to use a CD to save and pay for real estate or use a CD as collateral for a loan.

View Article Sources
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  4. Historical Returns on Stocks, Bonds and Bills: 1928–2021 — Aswath Damodaran, Stern School of Business, New York University
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  11. Best Money Market Accounts — SuperMoney
  12. CD Loan: What Is It and How Does It Work? — SuperMoney
  13. Compare CD Rates — SuperMoney
  14. Compare Money Market Account Rates — SuperMoney
  15. How to Use a Real Estate Certificate of Deposit to Buy Property — SuperMoney
  16. Money Market Account Vs. CD: Which is Better for Investing? — SuperMoney
  17. US Bank CD Review — SuperMoney
  18. Which Investment Has the Least Liquidity? — SuperMoney
  19. What Is Interest Income? — SuperMoney
  20. What is a Certificate of Deposit (CD)? — SuperMoney