What To Do When Your CD Matures

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

At maturity, the depositor must decide what to do with the CD. If the depositor does nothing, the bank is likely to roll over the CD for the same term, albeit at a higher or lower interest rate than before. The good news is that CD savers have a short window of time, called a grace period, before they have to take the next step.

“If you’re not quite sure what to do with mature CD benefits and need more time to decide, CDs typically have a 10-day grace period from the CD expiration date,” said Juli Erhart-Graves, Board Certified Financial Planner and Indianapolis Worley Erhart-Graves President.

What happens when a CD matures?

There are no common guidelines among financial institutions about what to do when a CD expires. The issuing bank may notify you in advance of the upcoming CD expiry date.

Erhart-Graves said that if you haven’t told the bank what to do with the CD, they may update it with the same deadline as before. So if you originally opened a CD with a one-year term, the bank will extend it for another year.

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CDs will also be rolled over at current market rates. “The new interest rates set by the banks may or may not be competitive,” said Rich Arzaga, a professor and founder of Insurance Whisperer in Monument, Colorado, and a board-certified financial planner.

Allowing your bank to renew the CD may be convenient, but it locks you into another term at a potentially less competitive rate of return.

Grace period: a very short time window

Each bank sets its own grace period for CDs, and the grace period may vary depending on when the CD expires. Typically, they range from 7 to 14 days. For example, Bank of America and Wells Fargo have a 7-day grace period, while Chase has a 10-day grace period. Ally Bank and Capital One gave 9 and 10 days respectively. Barclays has a 14-day grace period for online CDs.

The grace period gives CD holders time to withdraw funds or renew the CD. “During this time, you can have your money taken from the CD without penalty,” Arzaga said.

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If you decide to cash the CD and do not instruct the bank to mail you a check, you may be subject to a withdrawal penalty once the grace period expires. Prepaid penalties for CDs vary widely. For example, at Ally Bank, early exit from a two-year CD requires 60 interest days. But in Popular Direct, the penalty for two years of CDs is 270 days of simple interest.

You won’t lose money even if you forget an expired CD. Banks and credit unions reserve them for you to some extent, but their policies may not be to your liking. For example, if you miss the grace period and your bank renews your CD, you’re missing out on an opportunity to reinvest your money in higher yielding products.

Options for mature CDs

Expiration dates on CDs are tied to when they were run. For example, a one-year CD will expire in 12 months, and a five-year CD will expire in 60 months.

When the bank CD expires, you have several options:

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Put it on a new CD. You can take the money and the accrued interest and open a brand new CD at a different rate and term. You can choose to open a no-penalty CD, a price increase CD, or even put your money into another savings product.
Let it update. You can update the CD and add or withdraw funds during the same period if you wish. Depending on the interest rate environment, the yield on your updated CD may be higher or lower than the previous APY.
Redeem it. You can collect your principal and interest and use it to do anything you want, including spending, paying down debt, investing in stocks, mutual funds, Roth IRAs, and more.

Stay up-to-date on CD expiration dates

Before purchasing a CD, please confirm the expiration date with the issuer. Read the fine print, which should clearly state the terms of the CD.

Before buying a CD, ask the financial institution how they indicate the expiration date and how long the grace period is.

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

Find out if the institution that owns your CD allows early funding. If this is the case, you can write to the bank and tell the bank what to do when the CD expires without worrying about taking action in the future.

When you buy a CD, keep track of your expiration date. “Something as simple as marking up a calendar or setting a due date reminder on your phone should do the trick,” Erhart-Graves said.

Alternatives to Forgetful Savers

If you’re worried about forgetting the CD’s expiration date, it’s best to put the money in a regular savings or money market account. Interest rates are rising, and if you shop around, you’ll find that banks are paying competitive returns on traditional savings accounts.

Turning on the No Penalty CD is another option. That way, if you forget your CD’s expiration time, you can withdraw your savings without penalty. Just check your bank’s terms and conditions to find out what happens when your CD royalty-free period ends.

Another option is to simply use the money to pay off the debt instead of opening a CD account. “Paying down debt with higher interest than CD income is a brilliant idea,” Arzaga said.

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