What To Do When a CD Matures? Explore Your Options

Article Summary:

Investing in certificates of deposit, or CDs is a way to lock up your money for a period of time, while the money collects interest. When a CD matures, you have a short time frame to withdraw the money before you are hit with possible fees or penalties. Once a CD matures, you have several options for what to do with the money, including rolling it over to a new CD or investing it elsewhere.

When a CD’s term reaches maturity, you will typically receive a grace period from the bank or credit union that holds it. In most cases, if you miss the maturity date and grace period, the CD will be automatically renewed for a similar period of time. You must then be aware of the maturity date and grace period before deciding what to do with the cash. You can put the money into a new CD, renew the same CD, or withdraw the money and invest it elsewhere. If you choose to withdraw, you have further options. You could put the money into a money market account at the same bank, invest in a different financial product, or invest it yourself elsewhere in a product like an ETF.

CDs and maturity dates

A certificate of deposit, or CD, is one of the most common investment products. CDs are term deposits, meaning that the investor agrees to lock up the principal for a certain amount of time. The investor later receives the principal they invested plus an amount of interest earned on the money during the lock-up period. In most cases, the longer the money is locked up, the higher the interest rate. CDs are also insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000, meaning the money is guaranteed by the U.S. government.

A CD can last for different time frames. Short-term CDs can come in the form of 30 days, 60 days, and one year, and longer-term CDs can last up to 10 years and possibly more. Every CD will then have a maturity date. Under the terms of the contract that the investor signs, this is the date when the money is available to the investor. The investor must be aware of this time frame, particularly if they have plans to put the money elsewhere as part of an overall portfolio strategy.

Banks are constantly changing their CD terms, and now might be a good time to see what’s out there. Below are some banks that offer CD products.

What happens at the CD maturity date

There should always be a fixed maturity date in the terms and conditions of your CD investment contract. Once this happens, you have a grace period, defined by the bank, in which to decide what to do next. This grace period will typically last between one and two weeks. For example, Wells Fargo has a grace period of seven calendar days. Bank of America has a one-day grace period for extremely short-term CDs (under a month) and then a seven-day grace period for CDs that exceed 28 days. Chase has a grace period of 10 days, regardless of the term of the CD.

Here are some examples of CDs with different terms and when their maturity and grace periods will occur.

Date InvestedTime FrameMaturity DateDays in Grace PeriodGrace Period Time Frame
3/11/2230 days4/30/2210May 1-10, 2022
3/11/2260 days5/30/2214May 31-June 14, 2022
3/11/221 year3/11/2312March 12-24, 2024
3/11/222 years3/11/2410March 12-22, 2025
3/11/225 years3/11/2714March 12-26, 2027

What happens if you don’t take advantage of maturity?

Banks, credit unions, and other financial institutions give you a time window after the CD matures, as mentioned above. However, if they do not hear back from you, and the CD just sits there after maturity, there are two possible consequences.

The bank renews the CD but on worse terms

In most cases, the bank will simply renew the CD as it was set up originally. For example, if you purchased a one-year CD at a 4% interest rate, the bank will renew it in a similar one-year product. However, the rate may be lower than your original CD and not to your liking, as rates fluctuate. If you actually need the money, you can run into a second issue.

Early withdrawal from a renewed CD

Even though it doesn’t sound so bad, having your money automatically reinvested can cause issues if you actually need it. If you withdraw your money from the second CD early, you can be hit with a myriad of fees and penalties for early withdrawal. Some people will opt only for a no-penalty CD to avoid this, but the return on these products is typically not as good.

Options for a CD maturity date

If you know your maturity date and grace period but aren’t sure what to do once that date arrives, here are some options.

Buy a new CD

If CDs are a pillar of your portfolio that create a guaranteed yield, then you might want to consider re-upping into another CD. In fact, this is where you can take advantage of interest rates in one way or another based on the current market environment. An investor might want to put the money into a step-up CD, which rises with the Federal Reserve’s base rates. That is if they feel that interest rates will go up over their term.

Renew the CD

The easy option is just to renew the CD, which is what most likely happens if you don’t pay attention to the maturity date. If you are comfortable with the bank, credit union, or financial institution, and the rate is exactly the same, you might just want to renew it. Familiarity can give you extra peace of mind, which might allow you to allocate parts of your investment portfolio to risker/higher-return assets.

Withdraw the money

Once the CD matures and you have access to the money, you can effectively do whatever you want with it. You might opt to put it in another financial product offered by the bank, such as an ETF. Or you might opt to reinvest the money into something outside of the bank, such as real estate. Lastly, you might look to simply spend the money, particularly if other parts of your portfolio performed well.

FAQ

Can you keep money in a CD after it matures?

After a CD’s maturity date, the money can no longer be in the same CD. You will need to either renew into a similar CD or invest in a different CD.

How do I avoid tax on CD interest?

You would need to invest in the CD through a tax-advantaged account, such as a Roth 401k or Roth IRA, to avoid tax on CD interest.

Key takeaways

  • CDs are investment products that pay interest on the principal invested over a period of time.
  • Most banks and financial institutions offer a grace period after the CD’s maturity date for the investor to place or withdraw the money. After the grace period, the CD is often renewed.
  • If a CD matures and the investor misses the grace period, the CD may be renewed automatically. This can result in a lower interest rate or the investor having to withdraw money from the renewed CD and incur a penalty under the new CD account agreement.
  • Once a CD matures and they are within the grace period, an investor has several options. They can renew the CD, place the money in a different CD or product at a bank, or withdraw the money and spend it or invest it elsewhere.
View Article Sources
  1. Deposit Insurance FAQ – FDIC
  2. Federal Funds Effective Rate – St. Lous Fed
  3. What is a Certificate of Deposit? – SuperMoney
  4. Banking Guide – SuperMoney