How CD Maturities Work
Manage Your CD Maturity
A CD’s maturity date is the date when you can take your money out of the CD without paying any early withdrawal penalties. The CD’s term has ended, so the restrictions are lifted – but you’ll no longer earn the same amount of interest that you were earning on that money (which 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 given term (the term is simply the length of time that the CD lasts).
CDs generally pay higher interest rates than the rate paid on savings accounts because you've promised 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 take your money, and they’ don’t have to pay you 3% any longer.
How Long does it Take for a CD to Mature?
You get to choose how long your CD lasts. When you “buy” a CD (or put money into it), you choose the maturity date. Common choices include:
- Three months
- Six months
- One year
- 18 months
- Five years
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 that you purchased the CD or the date that the CD comes due.
If you’re not sure how much longer you’ve got, just ask your bank.
Early withdrawal: if you pull your money out of the CD before maturity (known as “breaking” the CD), your bank might charge an early withdrawal penalty. The penalty is often quoted as several months’ worth of interest, or you might pay a flat fee.
For more details, read about CD withdrawal penalties.
Liquid CDs: some CDs allow you to pull funds out before maturity – without any penalty. These “liquid” CDs are becoming more popular (because people like flexibility), but there’s no such thing as a free lunch. For the ability to pull out early, you’ll pay a cost in the form of a lower CD rate – you simply don’t earn as much on your money. Some liquid CDs allow you to pull all of your money out while others set limits. Read more about how liquid CDs work.
What Happens when a CD Matures?
When your CD matures, you’ve got several options, and it’s best to be proactive.
Maturity notice: your bank or credit union is required to send you a notification shortly before your CD matures (see Regulation DD). The notification might come by regular mail or email, depending on how you’ve 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 shown, make sure you find out – sometimes rollover rates are lower)
- The maturity date on renewing CDs
- The deadline to request a different action (such as transferring the money to your savings account)
Rolling over: 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 give 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 got previously. What’s more, some banks use lower renewal rates (to take advantage of laziness and busy people, perhaps), so this might not be your best option.
You’ve got options: the most important thing to know is that you have options. You can (among other options):
- Let the CD renew and take what you get
- Choose a different CD (maybe 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 accordingly. For more details on making a smart decision, see What to do with a Maturing CD.
How Long Should your Maturity Be?
When buying CDs, you get to choose how long the CD will last, and you might not know which maturity to choose. Again, your goals and your situation will help you pick 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 probably pays more than a three month CD.
Interest rates change: locking up for a longer period might or might not be a good idea. 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 (or liquid) CDs so you’re not locked in with a low rate. If you think rates will fall, locking in makes more sense. Of course, it’s really difficult – or impossible – to predict the timing and direction of interest rate changes, but it’s worth keeping in mind.
Ladder for flexibility: you don’t have to pick just one maturity. It’s wise to spread your money among different maturities.
- Some of it goes in a six month CD (and renew using six-month CDs at maturity)
- Some of it goes in a one-year CD
- Some of it 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. This helps you avoid paying penalties, and you can also manage the risk of getting stuck with the wrong interest rate. For more information, read about CD laddering strategies.