What to Expect When a CD Matures

You've Got Options at Maturity

Banking customer speaks with representative about CDs
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When a certificate of deposit (CD) matures, you get your money back without having to pay any early withdrawal penalties. The CD’s term has ended, so there are no bank-imposed withdrawal restrictions at maturity.

You can do what you want with the money, but if you buy another CD, you won't get the same interest rate. That might be a good or bad thing, depending on how rates have moved since you bought the last CD.

Keep reading to learn more about what to expect when your CD reaches maturity.

Certificate of Deposit Overview

CDs are timed deposits. When you buy a CD, you are depositing money into an institution that promises to pay an interest rate in exchange for your promise to keep the deposit with the institution for a set length of time.

CDs typically pay higher interest rates than what is available from savings accounts. Since you promise to keep your money locked up for a certain amount of time, the institution is willing to pay a higher rate for your deposit. 

You get to choose the timeline for your CD when you buy it. CD timelines are usually expressed in months, and they typically range from three months on the short end to several years on the long end. However, it's up to the institution to decide what kind of CDs to offer, so your institution may offer shorter or longer CDs.

Interest rates will vary based on the timeline of the CD. You usually get a higher interest rate in exchange for choosing a longer-term CD.

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, ask your bank or credit union.

Early Withdrawal

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 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.

Liquid CDs

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, but it’s best to be proactive. If you don't choose in time, a decision may be automatically made for you.

Maturity Notice

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 the preferences you have set up with your bank. Pay attention to these notices, especially:

  • The maturity date of your CD
  • The default action if you do nothing (the matured CD may automatically roll over into a new CD or it may deposit cash into your account)
  • 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 rollover CDs, if applicable
  • The deadline to change your default action or request a new action

Rolling Over

If you do nothing and you have set up an automated rollover, 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 may have a 10-day window of time after maturity to provide instructions to your bank. If you don't provide new instructions, your bank may 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 rolling over mature CD funds will pay what they currently offer to people buying six-month CDs, which might be more or less than you earned on the previous CD.

The interest rates on CDs will depend on many factors. Some factors simply come down to a bank's preference—what is it willing to pay for your deposit? Other factors are broader and out of any single bank's control, such as the current prime rate and Fed rate.

You’ve Got Options

The most important thing to know is that you have options. You can (among other things):

  • Let the mature CD roll over into a new CD and take whatever interest rate you get
  • Choose a different CD (perhaps a different maturity, or different kind of CD structure)
  • Choose a different institution that is offering better CD rates
  • Deposit the cash from the mature CD into your checking or savings account and use it for something else entirely

The best thing to do is to look at the mature CD funds as found money, like an extra $20 bill you found in your pocket. Evaluate your financial situation and your goals and decide how this extra money can help you meet those goals.

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. Here are some questions to ask yourself.

Do You Want Flexibility or Yield?

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. However, by opting for a one-year CD, you have less flexibility with your money than you would have if had you only signed up for a three-month CD.

In What Direction Are Interest Rates Going?

Locking up for a longer period might or might not be wise, depending on where interest rates are going. While it's impossible to know for sure where an interest rate is heading, you can gauge the general interest rate environment to estimate what will happen in the coming months and years.

If you think rates will move higher, it might be better to stick with short-term CDs, liquid CDs, or bump-up CDs. That way, you'll have a chance to reset your interest rate sooner, and if interest rates do increase, then you'll get a better rate when you reset after the short-term CD matures.

If you think rates will fall, locking in the current rate might make more sense. If you buy a two-year CD, for example, your interest rate won't reset for two years. If the interest rate falls during that time, it won't affect you as much as it would if you had only bought a three-month CD.

Ladder for Flexibility

Fortunately, you don’t have to pick just one maturity. It may be a good strategy to spread your money among different maturities. For example:

  • A portion could go into a six-month CD that rolls over into a new six-month CD at maturity.
  • A portion could go into a one-year CD.
  • The remainder could go into 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.

Article Sources

  1. Board of Governors of the Federal Reserve System. "Compliance Guide to Small Entities: Regulation DD: Truth in Savings." Accessed Sept. 15, 2020.