What to do when CDs mature

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Every certificate of deposit matures on a specific date. But if you haven’t yet figured out what to do with your maturing CD, there’s some good news — you’ll generally get a brief window of time to decide on next steps.

“If you aren’t quite sure what to do with the maturing CD proceeds and you need more time to decide, CDs usually have a 10-day grace period that begins after the CD matures,” says Juli Erhart-Graves, certified financial advisor and president of Worley Erhart-Graves in Indianapolis, Indiana.

Here’s what happens and what to do when CDs mature.

Options you have when a CD matures

When a bank CD matures, you usually have two options: renew it or cash it in.

This is what those options look like:

  • Cash it in. With this option, you collect your principal investment and any interest paid over the life of the CD. After withdrawing your money, you can put it in a different cash or investment account, roll it over into another CD or use it for some other purpose.
  • Renew it: You can choose to let the CD renew for the same or different term and add more funds. The CD yield on your renewed CD may be higher or lower than it was originally, depending on the current interest rate environment.

Fortunately, you usually don’t have to decide what to do right away once you’ve reached your maturity date. Most banks and credit unions offer a short period of time called a “grace period” when you can choose whether to withdraw your funds or renew the CD. The grace period typically starts on or the day after your maturity date.

Each bank sets its own grace period for CDs. Rich Arzaga, founder and CEO of Cornerstone Wealth Management in San Ramon, California, says it can range anywhere from seven to 14 days.

“It’s during this time you can take your money from a CD without penalties,” Arzaga says.

How long it takes for a CD to mature

Maturity dates on CDs, for the most part, are tied to their terms.

For example, a one-year CD would mature in 12 months, while a five-year CD would mature in 60 months.

Before you purchase a CD, however, make sure to confirm the maturity date with the issuing institution. It should be clearly stated in the terms of the CD.

What happens to forgotten CDs?

If you forget to instruct the institution to either cash or renew your CD when it matures, the bank will typically renew the CD for the same period as the original CD, Erhart-Graves says. For example, if you originally opened up a one-year CD, the bank will renew it for another year.

Importantly, the CD will be renewed at the current market interest rate.

“The bank sets the new rates, which may or may not be competitive,” Arzaga says.

So while allowing your bank to renew the CD is convenient, he says the cost of convenience is being locked into another CD maturity date and a likely lower or less competitive yield.

There’s no general policy across financial institutions for what to do when a CD matures, however. It’s crucial to check the fine print before you purchase a CD. In addition, the issuing bank will also typically send out a notice about the CD maturing. Ally Bank, for example, will alert you when your CD is about to mature. It has a 10-day grace period allowing CD holders to change the term, make additional deposits or withdraw funds or close the CD.

Even if you forget about a maturing CD, you won’t lose the funds. Banks and credit unions will hold them for you in some way. However, their policies may not be to your liking.

If you want to reinvest into another CD, but rates are now better at another institution, you won’t have the opportunity to switch to a higher-rate product if your bank has already rolled your funds into another product, for example.

Or, if you need the cash from the CD and you don’t advise the bank to send you a check, you’re likely to pay penalties to withdraw those funds once they’re rolled into another CD. Early withdrawal penalties for CDs can vary widely and some are harsher than others. At Ally Bank, for example, the cost of an early exit from a 2-year CD is 60 days of interest. But at Popular Direct, the penalty for a CD maturing in the same amount of time is 270 days of simple interest.

How to avoid forgetting a maturing CD

With careful planning, you can avoid forgetting about your maturing CDs and never worry about what will happen to them without your guidance. Before even purchasing a CD, ask the financial institution how it provides notice of maturity and how much time you’ll have between the notice and your deadline to take action.

If you move or change email addresses during the CD’s term, update your contact information with the financial institution. That way, when the notice of CD maturity is sent, you’ll be sure to receive it. Make a habit of opening mail from financial institutions in a timely manner.

Find out if the institution holding your CD allows for prematurity instructions. If it does, you can simply provide the instructions in writing for what to do with the money in your CD upon maturity, and you won’t have to worry about being there on a specific date to take action.

Once you buy a CD, track your maturity date. Your tracking system doesn’t have to be anything sophisticated. “Something as simple as marking your calendar or setting up a reminder on your phone with the maturity date should do the trick,” Erhart-Graves says.

In addition, the issuing bank will typically send out a notice about the CD maturing. Ally Bank, for example, will alert you when your CD is about to mature. It has a 10-day grace period allowing CD holders to change the term, make additional deposits or withdraw funds or close the CD.

Alternatives for forgetful savers

If you’re someone who’s bound to forget about a traditional CD you’ve opened, consider whether it’s best to park your money elsewhere.

Keeping your money in a regular savings or money market account, for example, may be a better idea. Since the Federal Reserve has recently been cutting interest rates to record lows, there’s not much of a difference between short-term CD yields and the interest rates tied to more liquid savings accounts.

A no-penalty CD is another option for the absent-minded. If you’re unaware when your CD matures (and it renews automatically as a no-penalty CD), you will be able to withdraw your savings without worrying about a penalty. Just make sure to check your bank’s terms and conditions to find out exactly what happens when your no-penalty CD term ends.

It can also be worthwhile to pay down credit cards and other debt instead of opening a CD account. “Paying down a debt that charges a higher interest rate than what the CD earns is an excellent idea,” Arzaga says.

Featured image by fizkes of Shutterstock.

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