How Certificate of Deposit (CD) Maturities Work
When you take out a certificate of deposit (CD), you agree to leave your money in the bank for a set period of time. When the term of the CD ends, the bank will release the money to you, along with the interest it earned. This is known as the CD maturing.
When your CD matures, you have several options. You can deposit the money in another account at the bank, like your savings account. You can roll it over into a new CD at the bank. Or you can take the cash. The bank or credit union that holds your CD will write to you shortly before it matures, and will give you instructions on your options.
- When you take out a CD, you agree to leave your money in the account for a set amount of time, known as the term length of the CD.
- At the end of this period, the CD will mature and your bank or credit union will release your money, along with the interest you’ve earned.
- At this point, you can take out the money, deposit it in another account, or roll it over into another CD.
- Your CD provider should send you a notice in the weeks before your CD matures. This message will outline your options and how you can tell the bank your decision.
Understanding CD Maturities
A certificate of deposit (CD) is a type of investment offered by most banks and credit unions that pay interest at a set rate in exchange for the customer agreeing to leave a lump-sum deposit untouched for a set period of time.
Effectively, you’re granting a loan to your bank. They’re loaning the money out elsewhere (at a profit). You’re getting a better interest rate than you would with a standard savings account.
You can take out a CD that runs for a few months or for many years. Generally, the longer the term is, the higher the interest rate you will get.
In the month or two leading up to your CD’s maturity date, the bank or credit union will notify you that the end of your CD term is coming up. This message should also include instructions on how to tell them what to do with the maturing funds. Typically, they will offer you three options:
- Roll over the CD into a new CD at that bank. Generally, this would be into a CD that most closely matches the term of your maturing CD. For example, if you have a 1-year certificate concluding, they would likely offer to roll your balance into a new 1-year CD.
- Transfer the funds into another account at that bank. Options include a savings, checking, or money market account.
- Withdraw the proceeds. The money can be transferred to an external bank account or mailed to you as a paper check.
In any case, the communication to you will stipulate a deadline for you to provide instructions, with an indication of what the institution will do in lieu of receiving your guidance. In many cases, the default move will be to roll your proceeds into a new CD.
Make sure you move quickly when your CD comes to maturity. The grace period to withdraw CD funds may only last days and if you don’t withdraw your funds and close the account, the money may be automatically rolled over into a new CD.
Issues and Problems
There are a couple of potential problems to be aware of when it comes to CD maturities.
The first is that you need to act quickly once you receive notice that your CD is about to mature. After the CD reaches maturity, the account enters a grace period that may last for up to 10 days. If you do not close the CD within the grace period, your bank may automatically roll over your CD into a new one. At that point, you’ll have to pay a penalty to access the funds before the next maturity date.
The exact amount of the penalty will pay on the bank or credit union. Federal law specifies a minimum penalty but there is no maximum, and they vary widely between banks and types of CD.
You should check these fees before you withdraw money from your CD. At worst, you could get back less than your original deposit.
Can You Close a CD Before Maturity?
Yes, you can. After all, the money in the CD is yours. However, you will be charged a penalty for this.
Federal law sets a minimum penalty on early withdrawals from CDs, but there is no maximum penalty. If you withdraw money within the first six days after deposit, the penalty is at least seven days’ simple interest.
Review your account agreement for policies specific to your bank and your account.
How Long Is a CD Grace Period?
It depends on your bank or credit union. Typically, it ranges from seven to 14 days. For example, Bank of America and Wells Fargo have seven-day grace periods while Chase gives 10 days. Online banks Ally Bank and Capital One give 10 days.
Can I Avoid CD Early Withdrawal Penalties?
In some cases, your bank may waive early withdrawal penalties for CDs. However, they are not required to do this by law.
The Bottom Line
When you take out a CD, you agree to leave your money in the account for a set amount of time, known as the term length of the CD. At the end of this period, the CD will mature and your bank or credit union will release your money, along with the interest you’ve earned. At this point, you can take a check, deposit the money in another account, or roll it over into another CD.
Your CD provider should write to you in the weeks before your CD matures. This message will outline your options and how you can tell the bank your decision.