What to Expect When a CD Matures
A CD’s maturity date is the date when you can take your money out of the CD without paying early withdrawal penalties. The CD’s term has ended, so there are no bank-imposed withdrawal restrictions at maturity. Going forward, you’ll no longer earn the same amount of interest that you were earning on that money. That might be a good or bad thing, depending on what rates have done since you bought the CD.
When you buy a CD, the bank promises to pay you a fixed rate of interest for a specific term (the term is the length of time that the CD lasts).
CDs typically pay higher interest rates than rates available from savings accounts because you promise to keep your money locked up for a certain amount of time.
For example, the bank might offer to pay you 3% for a one-year CD, while savings accounts only pay 2.25%. After the year is over (at maturity), the deal ends. You can withdraw your money, and the bank doesn’t have to pay you 3% any longer.
How Long It Takes for a CD to Mature
You get to choose how long your CD lasts. When you “buy” a CD (or invest money into it), you pick the maturity date. Common choices include:
The maturity date is often part of the CD’s name. For example, if you buy a “six-month CD,” the CD will mature six months after you deposit your money into that account. On your statements (online or on paper), you might see the date you purchased the CD or the date that the CD comes due. If you’re not sure how much longer you need to wait for maturity, just ask your bank or credit union.
If you pull your money out of the CD before maturity (sometimes known as “breaking” the CD), your bank might charge an early withdrawal penalty. That penalty is often quoted as several months’ worth of interest, or you might pay a flat fee.
In some cases, the penalty just wipes out the interest you earn, and you get 100% (or more) of your money back. In other cases, the penalty can eat into your initial investment, and you receive less than you put in.
Some CDs allow you to pull funds out before maturity without any penalty. These “liquid” CDs are increasingly popular because people like flexibility. But there’s no such thing as a free lunch. For the ability to pull out early, you pay a cost in the form of a lower CD rate—you don’t earn as much on your money. Some liquid CDs allow you to pull all of your money out while others set limits.
What Happens When a CD Matures
When your CD matures, you’ve got several options, and it’s best to be proactive.
Your bank or credit union is required to send you a notification shortly before your CD matures. The notification might arrive by regular mail or email, depending on how you set things up with your bank. Pay attention to these notices, especially:
- The maturity date of your CD
- The default action if you do nothing (often the CD will renew or roll over to another CD)
- The rate on renewing CDs (if this isn’t obvious, make sure you find out—the rollover rates could be lower)
- The maturity date for renewing CDs
- The deadline to request an alternative (such as transferring the money to your savings account)
If you do nothing, your bank will usually put your money into another CD with the same length as the CD that just matured. For example, if your six-month CD is maturing, you’ll often have a 10-day window of time after maturity to provide instructions to your bank. If you ignore the notice, your bank will put the money into another six-month CD. However, you might not earn the same rate that you were earning on the last CD—banks will pay what they currently offer to people buying six-month CDs, which might be more or less than you earned previously.
You’ve Got Options
The most important thing to know is that you have options. You can (among other things):
- Let the CD renew and take what you get
- Choose a different CD (perhaps a different maturity, or a liquid CD)
- Move your money to a different bank and use their CDs instead
- Move the money to your checking or savings account and use it for something else
The best thing to do is to evaluate your financial situation and your goals, and decide as if you just received this money and need to do something with it.
How Long Your Maturity Should Be
When buying CDs, you get to choose how long the CD will last, and you might not know which maturity to choose. Again, identifying your goals and required cash flows should help guide you toward the right maturity.
Longer Is Higher
In general, longer terms come with higher interest rates. If you want to maximize your earnings, a one-year CD typically pays more than a three month CD.
Interest Rates Change
Locking up for a longer period might or might not be wise. Your bank sets interest rates on CDs (in part) based on interest rates elsewhere and how the economy is doing. Rates can move higher or lower after you buy a CD.
If you think rates will move higher, it might be better to stick with shorter-term CDs, liquid CDs, or bump-up CDs so you’re not locked in at a low rate. If you think rates will fall, locking in makes more sense.
It’s difficult—or impossible—to predict the timing and direction of interest rate changes, but be mindful of the current interest rate environment.
Ladder for Flexibility
Fortunately, you don’t have to pick just one maturity. It’s smart to spread your money among different maturities.
- A portion goes in a six-month CD (and renews using six-month CDs at maturity).
- A portion goes in a one-year CD.
- The remainder goes in a two-year CD.
With that approach, you’ve got a maturity date coming up every six months or so, so you’ll have access to money if you need it. That helps you avoid paying penalties, and you can also manage the risk of getting stuck with the wrong interest rate.
Board of Governors of the Federal Reserve System. "Compliance Guide to Small Entities: Regulation DD: Truth in Savings," Accessed Sept. 24, 2019.
Consumer Financial Protection Bureau. "What Is a Certificate of Deposit (CD) Rollover or Renewal?," Accessed Sept. 23, 2019.