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My CD matured, what now?

By Sheyna Steiner ·
Wednesday, October 17, 2012
Posted: 5 pm ET

Owners of certificates of deposit that were purchased a few years ago may be in for a rude awakening when their CDs mature.

Exactly five years ago, the average five-year CD rate was 3.94 percent. Today, it's 0.97 percent. Given that many financial institutions automatically renew CDs for the same term at maturity if the owner doesn't act within seven business days, CD owners need to have a plan in place for their money before that happens.

Invest again or find something else?

The first question to ask when considering a potential investment is: When do I need this money?

A short time frame will narrow options. Investors with more time may be able to take a little more risk.

"Does the investor need to retain principal and not subject the funds to market risk? Typically, the answer is "yes," and typically funds are needed within one year. Certainly, CDs are an option in these cases," says Philip Lee, Certified Financial Planner professional at Modera Wealth Management in Boston.

For people without the time or inclination to take on more risk, or those who simply love CDs, online banks may offer higher CD rates than their brick-and-mortar counterparts.

For investors with a little more flexibility in terms of risk, short-term bond funds might be an option.

"To limit price volatility, consider ultrashort term bond funds. Do your research of the funds, considering your tax bracket and the duration of the bond funds. Longer term will be more sensitive to interest-rate changes. And consider the quality of the bonds. Are you buying high-quality or junk bonds?" Lee says.

Unlike a money market account or CD, bond funds can lose money so investors should be aware of that possibility.

Have you considered bond funds as option to beat low CD rates? Do you have an option that I haven't thought of?

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