When your certificate of deposit matures, you have a few options. But which is the best in today's falling-rate environment?
The answer depends on a number of factors, including your current financial situation and savings goals. Here's what you need to know about your options and how to determine which route is best for you.
The current CD rate environment
CD rates skyrocketed in 2022 and 2023 as the Federal Reserve raised the federal funds rate 11 times to combat rampant inflation. That's because banks tend to follow the Fed's lead, raising rates on consumer products like CDs and savings accounts when the Fed raises the federal funds rate. At one point, annual percentage yields, or APYs, reached 5.65% for the top CDs we track at CNET.
As inflation began to cool and the Fed paused rates eight times starting in September 2023, APYs on CDs held relatively steady. They finally started to slip in recent months as banks anticipated an eventual Fed rate cut -- and when this cut materialized last month, the slip turned into a landslide. As of Oct. 15, 2024, the top APY for the CDs we track is down to 4.75%. And with experts expecting at least one more cut before the year is up, rates are likely to keep falling.
It's important to keep this in mind when deciding what to do when your CD matures. Since your rate is locked in when you open a CD, timing can play a significant role in how much.
What happens when a CD matures
Your CD matures at the end of your agreed-upon term. Terms vary from bank to bank, but common CD terms range from three months to five years.
When a CD matures, your money and the interest accrued are yours to use as you please. Most banks have a grace period -- typically seven to 10 days after the CD's maturity date -- to allow you to decide what to do with your money.
If you don't withdraw your funds before the grace period is up, your bank may automatically renew your CD or roll over your money into another certificate of deposit with the same term or a similar term. This new CD's annual percentage yield, or APY, will be the bank's current rate, which could be lower or higher than your current CD's rate.
Alternatively, you may automatically receive a check for your CD balance in the mail. Different banks and credit unions handle things differently, so read your CD's terms and conditions to see what will happen to your money if you don't take action after it matures.
What you can do with your money when your CD matures
When your CD reaches its maturity date, you have several options for your money.
Roll it over into a new CD
If you decide to put your money into a new certificate of deposit, remember that interest rates will likely be different than they were when you opened the original CD. CD rates are falling, so if your account is maturing soon, this could be both the simplest and best option. With rates likely to fall further in the coming months, locking in a high APY now could protect your earnings from additional rate drops.Â
Bear in mind that your current bank and CD term may not be the best fit for your current needs. Rates can vary significantly from bank to bank and term to term, so take the time to compare rates to find the best one for your savings timeline.
If your CD has auto-renewal, your funds will automatically roll over into a new CD when your existing CD matures unless you take action within the grace period. The renewed CD usually has the same term as before, but with the current interest rate.
Withdraw it and use it
You can also withdraw your money and the interest accrued and use it for whatever you like when the CD matures. For example, if you've been saving for a specific expense like a wedding or a down payment on a house, you may choose this route.
Withdraw it and put it in a different account
If you want to keep saving your money and accruing interest, but a certificate of deposit no longer fits your needs, you can withdraw your funds and put them into another type of savings account. Each savings strategy has advantages and disadvantages, so consider which option will work best for your financial situation.
- High-yield savings account: High-yield savings accounts are savings accounts that earn significantly higher APYs than traditional savings accounts. Unlike CDs, they allow you to withdraw funds without penalty at any time, as long as you mind any monthly withdrawal limits. However, high-yield savings account rates are variable, so your APY could go up or down without notice. Additionally, many high-yield savings accounts are offered by online banks that don't have physical branches and may not provide ATM cards. So, you'll need to be comfortable managing your money digitally.
- Money market account: A money market account also typically has a higher interest rate than traditional savings accounts. It also comes with check-writing privileges and debit card access, like a checking account. There are no fees for accessing your money in an MMA, barring any monthly withdrawal limits. However, MMA rates are variable, so it’s hard to know how much interest you'll accrue. And MMAs often have higher initial deposit and minimum balance requirements than high-yield savings accounts.
- I bond: Like CDs, I bonds offer a fixed interest rate. But they also have a variable rate that's adjusted for inflation, which protects your purchasing power. You must keep your money in the I bond for at least 12 months, but if you access it before five years, you'll lose the previous three months of interest. Additionally, I bond earnings are exempt from federal income tax. Savings account and MMA earnings aren't.
Withdraw it and create a CD ladder
If you want to optimize your earnings and ensure regular access to your money, consider setting up a CD ladder. With this strategy, you invest your money in multiple CDs with different terms. When one CD matures, you can withdraw the funds or reinvest them in a new CD. Having multiple CDs maturing at different times gives you more flexibility with your money while allowing you to take advantage of the best interest rates.Â
Should you roll over your CD when it matures?
The best decision for your maturing CD funds depends on your financial goals and needs. Rolling over your money makes sense if your current bank or credit union has a good rate and you can afford to keep your cash locked up for another term. If you can find a better CD rate with a different financial institution, it may make sense to withdraw the funds and deposit them into a CD there.Â
If you need the money now, withdrawing it may be the best option. You can put it into a more accessible account, like a high-yield savings or money market account, so you can access it easily but still earn interest. Or you can use the money now. There's no right or wrong choice.
"Ultimately, it all comes down to your financial goals and how soon you might need that money," Kovar said. "Just make sure whatever you choose aligns with your overall strategy!"
Are CDs still worth it?
Despite falling APYs, a CD can still be a smart way to maximize your earning potential. While savings rates tend to rise and fall alongside the Fed's decisions, locking in today's APYs with a CD can protect your earnings from anticipated Fed rate cuts in the coming months. If you don't need your funds right now, rolling them over into a new CD can allow you to take advantage of today's high rates while they still last.
FAQs
Your CD may automatically renew when it matures, but it depends. Banks and credit unions have different ways of handling maturing CDs. Read the fine print of your account agreement to determine what will happen when your CD term is up.
Yes, your interest rate will likely change if you roll over your CD. You may keep the same term, but the rate will adjust to current interest rates.
Your bank or credit union may notify you before your CD expires, but only in some instances. They are required to alert you only if your CD term was longer than a year and the CD didn’t renew automatically.Â
If you do nothing when your CD expires, what happens next varies by financial institution. If you set up automatic renewal, the CD will roll over into a new one. If not, different financial institutions handle this differently.
Your institution may mail you a check for the amount in your account plus the interest earned. It may also roll over your CD even if you don’t have auto-renewal set up. Review the terms and conditions for your account to see how your institution will handle this.
Depending on your CD account agreement, you may earn interest during the CD grace period. Consult your agreement with the bank to see if this is the case for your account.
