What to do when a CD matures

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A certificate of deposit is called a “term deposit” because the depositor agrees to hold it with a financial institution for a specified period. The end of this fixed term, whether it is six months or 60 months, is called the maturity date.

It is at maturity that the depositor must decide what to do with the CD. If the depositor does nothing, the bank is likely to renew the CD at the same term, although the interest rate may be higher or lower than it was before. The good news is that CD savers get a brief window of time called a grace period before you have to move on to the next step.

“If you’re not sure what to do with maturing CD product and need more time to decide, CDs typically have a 10-day grace period that begins after the CD matures,” says Juli Erhart-Graves, Certified Financial Planner. and president of Worley Erhart-Graves in Indianapolis.

What happens when a CD matures

There is no common policy among financial institutions on what to do when a CD expires. The issuing bank will likely notify you in advance of an impending CD expiration.

If you haven’t told the bank what to do with the CD, they’ll likely renew it for the same term as before, Erhart-Graves says. So, if you originally opened a CD for one year, the bank would renew it for another year.

The CD would also be renewed at the current market interest rate. “The bank sets the new rates, which may or may not be competitive,” says Rich Arzaga, founder and CEO of Cornerstone Wealth Management in San Ramon, Calif.

Allowing your bank to renew the CD can be convenient, but it locks you in for another term at what could be a less competitive return.

The Grace Period: A Short Window of Opportunity

Each bank sets its own grace period for CDs, and grace periods may vary depending on the term of the CD. Typically, however, it ranges from seven to 14 days. For example, Bank of America and Wells Fargo have grace periods of seven days while Chase allows 10 days. Online banks Ally Bank and Capital One allow nine days and 10 days respectively. Barclays has a 14-day grace period for online CDs.

The grace period gives the CD holder time to withdraw the funds or renew the CD. “It is during this period that you can withdraw your money from a CD without penalty,” says Arzaga.

If you decide to cash in the CD and haven’t asked the bank to send you a check, expect to pay withdrawal penalties once the grace period has expired. Early withdrawal penalties for CDs vary widely. To Allied bank, for example, the cost of an early release of a two-year CD is 60 days interest. But to popular directthe penalty for a two-year CD is 270 days of simple interest.

Even if you forget a maturing CD, you won’t lose the funds. Banks and credit unions hold them for you one way or another, but their policies may not be right for you. For example, if you missed the grace period and your bank renewed your CD, you are missing the chance to reinvest your money in a higher rate product.

Options for a mature CD

Maturity dates on CDs are tied to their terms. For example, a one-year CD matures in 12 months and a five-year CD matures in 60 months.

When a bank CD matures, you have several options:

  • Put it in a new CD. You can take the money and accrued interest and open a brand new CD with a different rate and term. You can choose to open a CD without penalty or one Shock Rate CDor even put the money into another savings product.
  • Let it renew itself. You can let the CD renew for the same duration and add or remove funds if you wish. The yield on your renewed CD may be higher or lower than the previous APY, depending on the interest rate environment.
  • Cash it. You can collect your principal and interest and do whatever you want with it, including spending it, paying off debt, or investing in stocks, mutual funds, or a Roth IRAamong others.

Stay on top of CD expiration dates

Before buying a CD, confirm the due date with the issuing institution. Read the fine print, which should clearly state the terms of the CD.

Before buying a CD, ask the financial institution how they provide the maturity notice and how long the grace period is.

If you move or change your email address during the term of the CD, update your contact information with the financial institution.

Find out if the institution that holds your CD allows prematurity instructions. If so, you can tell the bank in writing what to do with the CD at maturity and you won’t have to worry about taking action on a specific date in the future.

Once you buy a CD, follow your expiration date. “Something as simple as marking your calendar or setting a reminder on your phone with the due date should do the trick,” Erhart-Graves says.

Alternatives for forgetful savers

If you’re worried about forgetting your CD’s due date, keeping your money in a regular savings account, or money market account may suit you better. With interest rates at historic lows, there’s not much difference between the yields on short-term CDs and more liquid savings accounts.

Opening of a CD without penalty is another option. This way, if you lose track of your CD’s expiration date, you can withdraw your savings without penalty. Just be sure to check your bank’s terms and conditions to find out what happens at the end of your penalty-free CD.

Another alternative is to simply use the money to pay off the debt instead of opening a CD account. “Paying off debt that charges a higher interest rate than what the CD earns is a great idea,” says Arzaga.

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