What Happens When a CD Matures?
A certificate of deposit (CD) is a great way to make your money work for you. But if you want to get full value out of your CD, it’s important to know when it matures, what happens after it does so, and what your options are.
It’s always a good idea to have your money work for you. One way to do that is to open a certificate of deposit (CD). There are several variations of CDs you can open, ranging from traditional CDs to high-yield jumbo CDs to bump-up CDs, to name a few. But, regardless of the type, the gist is the same: you agree to leave your chunk of change untouched in an account for a set period — known as the CD term — and in exchange, your deposit accrues interest.
Once you’ve reached the end of your term, your CD has matured.
A maturity date is an important moment for those who hold CDs. Maturity means the CD has reached the end of its pre-determined fixed term — untouched — and you are now free to get your money back, interest and all, without paying any sort of early withdrawal penalties. This is the moment you’ve been waiting for.
Congratulations! You’ve reached the end of your term and your CD is now mature. Now what? While each issuing institution may differ, typically you’ll receive a notice informing you of your CD’s maturity as well as providing next steps — because you have options (more on that below) and you have a specific amount of time to choose one of these options. This timeframe is known as your mature CD’s grace period.
While the length of time may range from financial institution to institution, the concept behind a grace period is the same: it’s the amount of time — post maturity date — that you have to choose the next step for your CD (e.g., withdraw, rollover, etc.)
When a CD matures, you have options for your next steps. You can:
If you’re ready to collect your funds (perhaps you opened the account for a very specific purpose), you can close the CD and withdraw the cash plus its accrued interest. You are now free to do with the money what you wish.
You can roll the money from the matured CD into another CD of your choice, perhaps one with a higher rate or a different type. Looking to start a CD ladder? This is your option.
You can let the CD renew for the same term with the option of adding or withdrawing funds if you want.
Depending on the financial institution, the funds from the matured CD can be deposited into a savings, checking, or money market account.
The choice is yours. Just be sure to make that choice before the grace period is up.
Yes, you can close your CD before maturity. But consider the consequences of doing so.
CDs are generally viewed as low risk compared to some types of investments and have a higher return than other similar options like savings accounts. However, that return comes with the assumption that you don’t touch your money and let it mature for the pre-determined term. And if you decide to withdraw or close your CD early, then you will likely incur an early withdrawal penalty.
While they may vary by financial institution, early withdrawal penalties are typically stated as a period of interest. And calculating an early withdrawal penalty can depend on a few things:
- The stated penalty of your term
- Whether it’s calculated monthly or daily
- Whether it’s based on the full balance or the withdrawal amount
The penalty equation is:
Penalty = Withdrawal Amount x (Interest Rate/365 Days) x Number of Days’ Interest
So if you choose to close a CD early, not only will you be giving up the interest you would have earned, but you’ll also have to pay the equivalent of a certain number of days’ or months’ worth of interest, as determined by the bank and disclosed at time of account opening.
CDs are a great way to make your money work for you. They’re considered safe and secure and offer high rates of return. But it’s important to understand how they work and to know what happens — and what you plan to do — once they mature.
If you’re interested in exploring High-Yield Jumbo CD options, check out those offered by Credit One Bank.