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.
You have several options when your CD matures. 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.
Key Takeaways
- 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. The account enters a grace period after it reaches maturity that may not last long, depending on the terms of your CD. Your bank may automatically roll over your CD into a new one if you don't close the CD within the grace period. At that point, you'll have to pay a penalty if you want to access the funds before the next maturity date.
The exact amount of the penalty will depend on the bank or credit union. Federal law specifies a minimum penalty for withdrawal within 6 days beyond the grace period for rollovers but there is no maximum. You should check these fees before you withdraw money from your CD. At worst, you could get back less money 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 and it can vary significantly. Bank of America has a one- to seven-day grace periods while Navy Federal Credit Union gives you 21 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.
As a seasoned financial expert with a deep understanding of certificate of deposit (CD) investments, let me shed light on the comprehensive concepts covered in the provided article.
Certificate of Deposit (CD) Overview: A certificate of deposit is a fixed-term investment offered by banks and credit unions, where customers deposit a lump sum of money for a specified period in exchange for a set interest rate. Essentially, customers are providing a loan to the bank, and the bank, in turn, loans out the money for profit.
CD Maturity Process: When the CD term ends, it is said to mature. At this point, the bank releases the deposited amount along with the earned interest. The article emphasizes that the customer has several options when a CD matures:
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Roll Over: This involves reinvesting the funds into a new CD with the same bank, typically matching the term of the maturing CD.
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Transfer to Another Account: Customers can transfer the funds into another account at the same bank, such as a savings, checking, or money market account.
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Cash Withdrawal: Alternatively, customers can choose to withdraw the funds either to an external bank account or receive a paper check.
Notification and Decision Process: Banks or credit unions usually notify customers a month or two before the CD's maturity date. The communication outlines the upcoming maturity and provides instructions on how to choose among the options mentioned above. Importantly, customers must act promptly, as there is a grace period after maturity, during which the bank may automatically roll over the CD if no instructions are received.
Potential Issues and Penalties: The article highlights potential issues that may arise during CD maturities. Acting swiftly is crucial, as failure to provide instructions within the grace period might result in an automatic rollover. Notably, there could be penalties associated with early withdrawal, and federal law sets a minimum penalty within the first six days beyond the grace period for rollovers. The specific penalty amounts depend on the bank or credit union.
FAQs on CD Maturity: The article addresses common questions regarding CD maturity, including whether one can close a CD before maturity (yes, but with penalties), the duration of the CD grace period (varies by institution), and the possibility of banks waiving early withdrawal penalties (not mandated by law).
Conclusion - The Bottom Line: In conclusion, the article emphasizes that when entering a CD, customers commit to leaving their money for a specific term, and upon maturity, they have choices on how to handle the funds. Communication from the CD provider is crucial, and customers must be aware of potential penalties for early withdrawal. Overall, understanding the CD maturity process is essential for making informed financial decisions.
