When a certificate of deposit (CD) matures, you’ve got options, including renewing, cashing out, and more. So, what should your next move be when a CD matures?
You may have a grace period—often 10 days or so—to decide what to do and provide instructions to your bank. Doing nothing usually results in the CD renewing automatically—your money gets dumped into a new CD and the process starts over.
However, renewing is not necessarily your best option, and it’s always wise to proactively choose what happens to your money instead of letting your bank do it for you. Here are some options for you to consider.
Time to Evaluate
When your CD comes due, take the opportunity to evaluate your financial goals and your current financial position.
How are things going with your finances? What are your financial goals? Do you want to keep that cash in a CD, or would it be better to put the money elsewhere? When you originally bought the CD, perhaps it made perfect sense, but several years may have passed since then, and a lot can change during that time. If you end up reinvesting into another CD (or allowing your bank to do it for you), make sure it’s a conscious decision—not a default option.
Evaluating your finances also helps you avoid using your CD proceeds for a spending spree as you might with money you found in an old pair of jeans. Instead of spending the cash on the first thing that catches your eye, remember why you bought the CD in the first place. Perhaps it was for a down payment, your next car, or a safety net for life’s surprises.
You don’t have to decide right away. If you need time to think about it, move the money to a savings account while you explore options. You can reinvest in a CD if, and when, you’re ready. Unless your bank provides an incentive for renewing automatically, a temporary pause is unlikely to significantly affect your finances. That's especially true if you keep your funds in a high-yield account.
Putting the Money in a New Savings Account
If you decide that you want to keep your money safe, evaluate all the alternatives in addition to your new CD options. Several types of government-insured bank accounts provide security and a small amount of interest income.
Your current bank may have offered great CD rates when you first bought your CD, but other banks could be more attractive now. See how much more you might earn by switching banks, but don’t jump ship unless it’s really worth it. Calculate how many more dollars per year you’ll earn if switching is tempting, and be sure to include credit unions in your search. Changing banks takes time and energy, and your money might not generate any interest while moving between banks, so sometimes switching is not worth it.
Your money has been locked up for a long time, and now it’s free. If you like how that feels, consider using a liquid CD that allows penalty-free withdrawals (more or less) any time. The tradeoff is that you typically get a lower interest rate when you opt for freedom. But that might be a price you’re willing to pay.
Money Market Accounts
CDs often pay more than savings accounts. However, they might not pay significantly more, and money market accounts are more accessible. If you value flexibility, explore money market accounts, which can pay almost as much as CDs while allowing you to access your cash. Money market accounts aren’t as liquid as checking accounts, but your cash will be easier to access than it would be in a CD. For example, you might receive a checkbook or debit card for occasional spending.
Money market accounts typically limit customers to six withdrawals per month, but certain types of transactions—such as ATM withdrawals—may not count toward the withdrawal limit.
Form a CD Ladder
CD ladders offer some flexibility by investing smaller amounts in multiple CDs that mature every six months or so. This allows you to access the money more easily while still enjoying the perks of CDs.
CD ladders can also be more beneficial than locking in a single, long-term CD if interest rates are rising. Every time a CD matures, you'll have an opportunity to reset the interest rate. Of course, this can have the opposite effect when interest rates are falling.
Pay Off Debt?
Another option is to use the money to pay off loans. Evaluate how much you pay in interest compared to the interest you earn on CDs. If you have toxic loans like high-interest-rate credit card debt, you might be better off eliminating the debt (and cutting up those cards).
Before you pay off a chunk of debt, make sure you can do so without totally depleting your cash savings. Cash provides security, and you can use it to make high-priority payments (such as your mortgage, auto expenses, and healthcare costs). Using cash to pay down debt means you have less of a cushion to fall back on.
At the same time, you can potentially eliminate a few monthly payments, which frees up cash flow to rebuild your savings. Plus, you can minimize interest costs by paying down debt. These are the factors you'll have to consider before deciding one way or another.
It’s always wise to have emergency cash available in a bank account. If you want to reduce your debts, that’s a great idea. Just decide how much (if any) to keep in savings for any surprises. An emergency fund can potentially help you avoid taking on debt when something happens.
If you have plenty of cash available and no debt, you may want to consider different types of investments for longer-term goals (like retirement). CDs are safe, and that may be exactly what you need. However, if you have a long time horizon and the ability to take more risk, a diversified portfolio with a mix of stocks and bonds could be more appropriate than a CD investment.
Frequently Asked Questions (FAQs)
Which banks have the best CD rates?
Online banks typically have the best rates for CDs and interest-bearing accounts, but the best CD rates often come from credit unions instead of banks.
When will CD rates go up?
Interest rates usually increase as the economy improves. Tracking the fed funds rate is one of the simplest ways to gauge the inflationary environment. Any movement in the fed funds rate trickles throughout the economy; when it goes down, so do CD rates, and vice versa.
How long does it take to cash out a CD?
If you plan on waiting for a CD to mature, the time it takes to cash out will be determined by the type of CD you buy. A three-month CD takes three months to cash out, for example. You may also be able to get out of a CD early, and while it may come with extra fees, you should be able to cash out nearly instantaneously. The only delay would be the time it takes to transfer the funds to a checking account.