When a certificate of deposit (CD) matures, it's a key moment for your investment. Finally, your principal investment becomes available for withdrawal—along with any interest it has earned—but should you cash out or reinvest?
Once a CD matures, it typically stops earning interest unless you act during the grace period. During this time, you can withdraw your funds without penalties, reinvest in a new CD, or explore other financial options. If no action is taken, your funds may automatically roll over into a new CD with potentially different terms.
To help you navigate this decision, this article will provide comprehensive insights from experts, so you know exactly what to do when CD matures.
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What happens when a CD matures
A CD works by locking in your money for a set term, allowing it to grow at a fixed interest rate over that period. When a CD matures, it means the term is over and you can now access your principal investment and any interest earned.
Once the CD maturity date comes, you need to decide what to do with the money you have in that account. “Banks normally send out a notice via email and/or paper mail when your CD is close to maturity,” says Bryan Schod, a Certified Financial Planner with Luttner Financial Group.
At this point, you have several options:
Withdrawing your funds: At maturity, you can immediately withdraw both the principal and the earned interest.
Reinvesting in a new CD: You can roll the money over into a new CD but with different interest rates.
Exploring other investment options: You can transfer your money and earned interest to different types of investments outside of CDs.
If you don’t take action during the grace period—typically seven to 10 business days—your bank may automatically roll your funds into a new CD—often with the same term length, but possibly with a different interest rate.
Stay vigilant and prepared as your CD maturity date approaches. “I’ve seen people being a bit careless with their CD maturity,” says Sofia Perez, a financial advisor at Character Counter. “Your CD might have already matured and now you’ll need to make a quick decision.”
Does a CD continue to earn interest after maturity?
Generally, once your CD reaches maturity, it stops earning interest. That said, your money might get rolled into a new CD automatically, and that CD will start earning interest. “CDs generally get reinvested into a new CD unless you cash out,” Schod says. The new CD will earn interest based on the new term's conditions.
This automatic reinvestment underscores the importance of acting promptly if you don’t want your funds locked into a new CD.
What to do when CD matures
When your CD matures, you're presented with several choices. Schod’s first piece of advice: Consider current interest rates. “Reinvesting in a new CD can be a good idea when interest rates are trending up,” he says. On the flip side, he continues, “you can withdraw the CD and reinvest it in something new if interest rates have dropped, as it's unlikely your CD will renew at the same or a higher rate.”
If you have specific financial goals, such as buying a house or funding your children’s education, Perez suggests a CD “laddering option” that ensures you’ll have liquid cash available when you need it. “After maturity, you can park your money in multiple CDs and get the maturity date around the time frame you’re planning for a big purchase,” she says.
Cd maturity: What are your options?
Your choice should reflect where interest rates are headed and when you might need access to your money.
Withdraw the funds
Withdrawing your funds at CD maturity gives you immediate access to both your principal and earned interest. This is a great option if you need cash for an upcoming expense or want to explore more lucrative or flexible investment opportunities.
- Pros: Immediate access to funds; flexibility to invest elsewhere
- Cons: No further interest earned after withdrawal; requires a clear plan for reinvestment
Reinvest in a new CD
Reinvesting in a new CD allows you to continue growing your savings with minimal risk. It's important to compare current interest rates with those from when you first opened your CD. If rates are higher, reinvesting can yield better returns. If rates have dropped, you might consider CDs with shorter terms or other financial products for more flexibility.
- Pros: Continued low-risk growth; potential for higher returns if rates have increased
- Cons: Locked into current rates; less flexibility compared to other investments
Consider other investment options
If you’re looking for higher returns or more flexibility, you might consider alternative investment options. For example, you could move your funds into a high-yield savings account, invest in bonds, or even explore the stock market, depending on your risk tolerance and financial goals.
This option is ideal if you’re willing to take on more risk in exchange for potentially higher returns. However, unlike a CD, these investments may not offer guaranteed returns, so it's crucial to weigh the risks and rewards carefully.
- Pros: Potential for higher returns; more investment flexibility.
- Cons: Increased risk; no guaranteed returns.
Read this next: 6 CD Alternatives That Could Be a Smarter Choice For You
Managing your CD: date calculator and grace period
Managing your CD effectively requires understanding the key dates and available tools that can help you make informed decisions. In this section, we’ll explore these critical aspects to help you manage your CD with confidence.
CD maturity grace period
How long after a CD matures can you withdraw? “You generally have seven to 10 business days to reply with your decision to the bank, failing which your funds are automatically rolled over in a new CD,” Perez says. However, each bank has its own rules for this period, so it’s important to check with your specific institution to confirm the exact timeframe and any relevant policies.
During this period, you can withdraw your funds without penalties. You also have the option to renew your CD or explore other investment opportunities. If you miss this grace period, your funds may automatically roll over into a new CD, with the same or a different term length and interest rate.
What is a CD maturity date calculator?
A CD maturity date calculator is a simple tool that helps you determine the exact date when your CD will mature, allowing you to plan your financial decisions accordingly. This calculator typically requires inputs like the start date of your CD, the term length, and the interest rate.
The calculator then tells you the exact maturity date and how much interest you will have earned by that time.“If you need to cash out before the maturity date, a calculator will help you determine any penalties and taxes you might pay,” Perez says.
What are the tax implications of cashing out a CD at maturity?
If you have a CD with a term of longer than one year, you have to pay income tax on the interest every year. And no matter how long the term of your CD, cashing out a CD at maturity comes with tax obligations, specifically on the interest you've earned. When you withdraw your CD, Perez says, “the interest earned will be taxable, and you'll need to report it on your next tax filing.” The amount of tax you owe will depend on your income level.
Ultimately, deciding what to do when a CD matures is a personal one that depends on your immediate need for cash, your investment opportunities, and your comfort level with risk.