What Do You Do When Your CD Matures?
Written by
Elizabeth Constantineau, AI Editor
Edited by
Elizabeth Constantineau
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A certificate of deposit presents a secure and effective way to grow your savings. By offering a fixed interest rate over a predetermined period, a CD can turn your initial deposit into a larger sum as it matures. When your CD matures, you’re presented with a choice on how to proceed with the accumulated funds. Read on to discover the various options available to you.
What Do You Do When Your CD Matures? 4 Main Options
When your CD matures, you have several paths to consider. Each option offers different benefits and should be chosen based on your current financial situation and future goals. Here are the main options.
1. Roll Over Into a New CD
The most straightforward option is to renew your CD. Many banks offer an automatic rollover feature where both the principal amount and any accrued interest are transferred into a new CD.
It’s crucial, however, to evaluate the interest rates during the grace period provided after maturity. Interest rates may vary since your first investment, and the grace period is an optimal time to survey the market for potentially better rates or terms before committing to a rollover.
2. Withdraw the Funds
Opting to withdraw both the principal and the interest gives you immediate access to your funds. This flexibility is ideal for covering emergency expenses, making significant purchases or reallocating funds for alternative investments. Consider transferring the amount directly into your checking account for easy access and immediate use.
3. Transfer to Another Account
If you’re not keen on renewing the CD, consider transferring the funds to a high-yield savings account or a money market account. These options offer more flexibility and can still accrue reasonable interest.
4. Reinvest in Different Financial Instruments
The maturity of your CD could be a chance to diversify your portfolio. Options like stocks, bonds or mutual funds might offer higher returns, albeit with different risk profiles.
What Are Grace Periods?
A grace period is a window following your CD’s maturity, allowing for changes or decisions regarding your investment without penalties. This critical timeframe offers the flexibility to reassess your investment strategy post-maturity.
Grace Periods at Major Banks
Grace periods can vary significantly between financial institutions, typically ranging from 7 to 10 days after maturity. Key examples include:
- Chase: 10-day grace period
- Bank of America, Member FDIC: 1-7 days
- Wells Fargo: 7-day grace period
- Ally Bank: 10 days
- Synchrony Bank: 10-day grace period
- Capital One: 10 days
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Utilizing the grace period effectively ensures decisions regarding your CD are made with consideration, not haste.
Things To Keep in Mind
Several key factors should influence your decision about what to do when your CD matures. These considerations ensure that you make the most out of your investment:
- Penalty for early withdrawal: Withdrawing your money before the maturity date usually incurs a penalty. Hence, it’s advisable to wait until the CD matures to avoid these fees.
- Interest rate environment: Keep an eye on the current interest rates. A lower interest rate environment might make rolling over your CD less appealing.
- Inflation and tax considerations: Remember that inflation can erode your real returns. Also, the interest you earn is taxable, so factor this into your decision-making process.
How To Plan Your Strategy
As you approach the maturity date of your CD, it’s essential to take proactive steps to ensure you make the best decision.
- Stay informed about your CD’s maturity date and understand the grace period offered by your bank. This period is crucial as it allows you to make changes without penalty.
- Assess your financial goals. Your decision at the CD’s maturity should reflect your current needs and future objectives, especially if these have changed since you first invested in the CD.
- Don’t hesitate to seek professional advice. If you’re uncertain about the best course of action, a financial advisor can offer tailored guidance based on your overall financial situation. This expert input can be invaluable in navigating your investment choices.
Final Take
The maturity of your CD is not just a reminder of a completed investment cycle — it’s an opportunity to reassess and realign your financial strategy. Whether you opt to open a new CD account, withdraw or explore other financial avenues, the key is to make an informed decision that supports your financial well-being and future goals. Remember, the end of one investment can be the beginning of another, equally fruitful one.
FAQ
Here are the answers to some of the most frequently asked questions regarding CD accounts.- What does CD mature mean?
- When a certificate of deposit matures, it means that the fixed term agreed upon when you first invested in the CD has come to an end. During this term, your money has been earning interest at a predetermined rate. At maturity, you have full access to your initial investment plus the interest earned over the term of the CD.
- How do I cash out a mature CD?
- To cash out a mature CD, you need to contact your bank or financial institution where the CD was held. Usually, upon maturity, banks typically provide a grace period during which you can withdraw the funds without penalty. You can choose to have the funds transferred to another account, or you can collect the money in the form of a check or cash. If you don't take any action, many banks will automatically roll over the CD into a new term, so it's important to inform them of your decision to cash out.
- How much does a $10,000 CD make in a year?
- The amount a $10,000 CD can earn in a year depends on the interest rate and the compounding frequency.
- For example, if you have a CD with an annual interest rate of 2% and the interest is compounded annually, your $10,000 CD would earn $200 in one year.
- However, if the interest compounds more frequently, like monthly or quarterly, the total interest earned could be slightly higher due to the effect of compounding.
- Can you lose money on a CD if you hold it to maturity?
- Generally, if you hold a CD to maturity, you do not lose money. CDs are considered safe investments as they guarantee the return of your principal along with the accrued interest, as long as you keep the funds in the CD until it matures.
- The risk of losing money arises if you withdraw the funds before the maturity date, which can lead to penalties that might reduce your principal. However, it's important to consider the effect of inflation, as the purchasing power of the money returned might be less than it was at the time of investment, even though the nominal amount is guaranteed.
- Can I add money to a CD before it matures?
- Generally, you cannot add money to a CD once it has been opened. However, some banks offer multi-deposit or "add-on" CDs that allow additional deposits.
- Are CDs held to maturity?
- CDs are intended to be held to maturity for the maximum benefit. Early withdrawal can result in penalties, reducing your earnings.
Casey Bond contributed to the reporting for this article.
Information is accurate as of March 12, 2024.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
