Although bear markets can be concerning, they also provide opportunities to investors if you know where to look.
You need to understand what a maturity date is. Here’s what to know.
What is a maturity date?
The maturity date refers to the date when an investment, such as a certificate of deposit (CD) or bond, becomes due and is repaid to the investor. At that point, the investment stops paying interest and investors can redeem accumulated interest and their capital without penalty.
A certificate of deposit (CD) is a debt instrument used by banks to raise money. Key characteristics of a CD are:
- Maturity date — A CD has a fixed maturity date that can vary from one month through to five years.
- Interest rate — Interest accrues at an annual rate of interest that is fixed at the date of purchase.
- Interest payments — Depending on the CD, interest may accumulate and be paid out on the maturity date, or it can be paid out periodically on a monthly, quarterly or annual basis.
- Early withdrawal — It’s possible to withdraw capital before the maturity date, but in most cases an early withdrawal penalty is applied.
A CD is considered a safe investment and is an ideal way to store money for a period of time while earning interest. The interest earned on a CD is higher than the interest you can earn on savings accounts. The longer the term of the CD, the higher the interest you will earn on it.
When a CD is about to mature, your bank will notify you and provide you with the option to redeem your money or to roll it over into another CD.
The term maturity date is also applied to corporate and Treasury bonds. These operate in a similar fashion to CDs, with one important exception. You cannot draw your money out early. You have to wait for the bond to mature.
Maturity date example
Charles has invested $10,000 in a 5-year CD with a local bank at an interest rate of 2.25 percent. The CD matures in a few months and, because he may need the money later in the year, he notifies the bank that he wants to convert the CD to a 6-month CD.
Are you planning to use CDs to grow your money? Use Bankrate’s CD rates guide to find the best terms for your CD.
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