When your CD term ends or “matures,” you typically have a grace period of a few days to decide whether to withdraw the funds or let the CD renew. Many banks renew or automatically roll over a CD’s funds if you don’t take action during the grace period.
Let’s look at what happens when your CD matures and when renewing it might be a good idea.
What happens when your CD matures?
When a CD matures, that means the term has ended. If you opt for a 6-month CD, your CD will mature after 6 months. You can withdraw your initial deposit and any interest earned without penalty.
You have 3 options when a CD matures – withdrawing the funds, renewing the CD for a new term or reinvesting the money elsewhere. Most CDs have a period of a few days after the term ends, called the grace period, when you can withdraw the funds without penalty. The grace period typically lasts between 7-10 days. After the grace period, the CD automatically renews, usually for the same or a similar term length.
How do you renew your CD?
Renewing your CD is often automatic. Once the grace period ends, the bank may automatically roll over your money to a new CD with a similar term. However, if your bank does not automatically renew CDs, you may have to initiate this process.
While the new CD’s term length may be similar, interest rates may have changed depending on market conditions. It's important to check the new terms when your CD matures.
Reasons to renew your CD
Renewing your CD can be the right move, depending on your financial situation and market conditions. Here are times when renewing your CD might make sense:
- You don't need the money in the short term: If you don’t foresee needing access to these funds soon, letting the CD renew can be an easy, convenient way to continue growing your savings.
- Interest rates are higher: If interest rates for CDs have increased since your initial term started, renewing your CD could allow you to lock in a better rate.
- It's convenient: Renewing your CD requires little effort, especially if your bank automatically does it. This is an easy way to keep earning interest on your money.
- Continue earning interest: Renewing the CD ensures that your funds keep growing. This can be a smart move, especially if the alternative is leaving the money in a checking or savings account where it will earn little or no interest.
Reasons not to renew your CD
While renewing a CD has its benefits, there are situations where it may not be the right choice. Here are some reasons why you might choose not to renew:
- Interest rates are lower: If current interest rates are lower than when you opened your CD, you might earn less on your deposit during the next term.
- You need the money in the short term: CDs typically require you to lock in your money for a set period, and withdrawing early could result in penalties. If you anticipate needing access to your funds soon (such as for a large purchase like a down payment on a home), renewing your CD may not be the best option.
- You want easier access to your money: Most CDs have fixed terms and withdrawal penalties, meaning your money is less liquid than with options like high-yield savings accounts. If you prefer more flexibility, a different savings vehicle might better suit your needs.
