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A certificate of deposit, also known as a CD, is an account that pays interest on your money for a set period of time. The end of the CD’s term — also referred to as the time it matures — is when you can choose to cash in the CD or renew it.
If you have a CD that’s nearing the end of its term, you may be wondering what’s involved with renewing it. It’s important to know your CD’s maturity date and whether you plan to let it automatically renew or cash it in.
What happens when a CD matures
Most CDs have set terms, which generally range from three months to 10 years. Your money is locked in until the term ends, at which time you’ll receive your principal investment along with the interest the CD has earned.
If you do nothing when the CD matures, the bank may automatically renew the CD for another term of the same length. It will earn whatever yield the bank currently pays for that term — and chances are it will be a different rate from the one you earned during the previous term.
For instance, say you have a five-year CD that pays a 2.25 percent annual percentage yield (APY) and is about to mature. If you choose to do nothing, the bank will likely renew the CD automatically for another five-year term at whatever rate it’s currently paying — which may be 3.5 percent, for instance.
How to renew a CD
Many banks will renew a CD — a process often referred to as an automatic rollover — if account holders do nothing when the CD’s term ends. For an automatic rollover, the bank deposits your funds into a new CD with the same term length, at whatever rate the bank currently is paying for that term.
Most banks provide a grace period when a CD matures — typically from 7 to 10 days — during which the account holder can choose to renew the CD or withdraw the funds without penalty.
If you choose to renew the CD and the bank’s policy is to roll it over automatically, simply do nothing during the grace period. The new APY may be higher or lower than the one you previously earned, depending in part on the general rate environment.
Pros of renewing a CD
Account holders commonly allow CDs to roll over at the time of their maturity.
Advantages of going this route include:
- It’s convenient: Letting your CD renew for another term when it matures can be the easiest option since it often requires doing absolutely nothing.
- A higher APY is possible: You may earn a higher return after the CD rolls over, especially if it’s a more favorable rate environment now for CDs than when you originally opened the CD.
Cons of renewing a CD
Consider several potential downsides before renewing your CD for another term:
- Inflation: If your funds are locked into a CD with a rate of return that is outpaced by the rate of inflation, your dollars lose their purchasing power.
- Other CDs may earn higher rates: Letting your CD roll over automatically may mean you haven’t shopped around to find better CD rates elsewhere.
- Other deposit accounts may pay higher rates: Depending on the rate your CD is earning, you may find your money can earn a better rate when placed in a liquid savings account instead. Another benefit of such a savings account is you’ll have access to the money at any time, without penalty.
What to know before renewing a CD
Before you renew a CD, read the fine print and determine the following information, which can help you decide what to do when the CD’s term is up:
- The CD’s maturity date: Mark that date on your calendar or set up a reminder for it on your phone.
- How the bank will notify you of maturity: Banks are required to send you a written notice when a CD’s maturity date is approaching. Even if you set up your own reminder, it can be helpful to know in advance when and how the bank will send their notice.
- How long the grace period is: Most banks provide a grace period when a CD matures — typically from 7 to 10 days — during which the account holder can choose to renew the CD or withdraw the funds without penalty.
- What will happen if you do nothing when the CD matures: A bank may automatically renew the CD for another term, or it may deposit the cash into one of your other accounts.
- The policy for opting out of a rollover: Your bank may allow you to provide instructions in advance if you do not wish to have your CD roll over when it matures.
CD grace periods by bank
Many banks offer a grace period when their CDs mature. This allows you to compare rates elsewhere and decide whether you want to renew your CD with the bank. The grace period often begins the day after the CD’s maturity date.
The following table shows the CD grace period provided by various popular banks:
|Bank||CD grace period|
|Ally Bank||10 days|
|Bank of America||7 days|
|Bask Bank||10 days|
|BMO Harris||10 days|
|Bread Savings||10 days|
|Capital One||10 days|
|Marcus by Goldman Sachs||10 days|
|Synchrony Bank||10 days|
|Wells Fargo||7 days|
Alternatives to renewing a CD
You may choose not to renew a CD if you need the money for other purposes or if you choose to invest the funds elsewhere. During the grace period for a CD that is maturing, you can do the following instead of allowing the CD to roll over:
- Withdraw the money and place it in another CD. This may be a good choice if you shop around and find another CD elsewhere that pays a higher rate.
- Withdraw the funds and put them in a different account. You may find a high-yield savings account that earns a better yield than the CD. In addition, money in such a liquid account can be withdrawn at any time without penalty, unlike most CDs. After some consideration, you may also decide to invest the money in the stock market.
Renewing a certificate of deposit is a relatively simple way to ensure your funds continue to earn interest if you are able to lock them in for more time. However, it’s best to compare rates elsewhere and consider whether there are better alternatives before committing to another term.