What Happens When A CD Matures?

Jan 15, 2024 By Triston Martin

There's no standard practice between financial institutions regarding how to proceed when the CD is due to mature. The bank issuing the CD may notify you before the approaching CD maturation. If you didn't instruct the bank on which to use the CD, it would probably renew it with the same terms as before. If you initially opened a one-year CD, it would be a good idea to renew it for a second year. The CD is also extended at the present interest rate. Allowing the bank to extend your CD might be convenient; however, it will lock the CD for a different period at an uncompetitive yield.

The Grace Period

Each bank has its grace period for CDs. These grace periods may differ depending on the term. However, the grace period varies from 7 to 14 days. For instance, Bank of America and Wells Fargo have seven-day grace intervals, and Chase provides ten days. Online banks, Ally Bank and Capital One, offer nine and ten days, respectively. Barclays offers an extended grace period of 14 days for CDs purchased online. The grace period allows the CD owner to cash out the funds or renews the CD. If you choose to cash out your CD and you did not instruct the bank to mail you the check, be prepared to pay the withdrawal penalty when the grace period is over. The penalties for early withdrawals from CDs can be a bit different. For Ally Bank, for example, the price for an early withdrawal from a 2-year CD will be 60-days of interest. At Popular Direct, the penalty for a two-year CD is just 270 days of interest.

Even if you don't remember the maturity date on your CD, you'll not lose the money. Credit unions and banks will retain them somehow, but their policies might not be in your favor. For instance, if you did not meet the grace period and the bank has renewed the CD, you lose the opportunity to invest your funds in a more lucrative product.

CD's Maturity Date

In contrast to other bank accounts, CDs can penalize you for withdrawals anytime during your grace time. The early withdrawal penalty is likely to be a few months' worth of interest or even a full year's worth (see the list of over 12 banks with penalties). Banks usually send out a notification about three to four weeks before the date of maturity for a CD and about a pending renewal. If you don't remember or lose track of this notification in time, you could not be able to catch the grace period, and if you don't wish to be penalized, then you'll need to wait until the new term is over before receiving the cashback. One exception is an unpenalty-free CD. They're not the most affordable prices; however, they offer the security of knowing that you can cancel at any time for free within the first few days.

Build a CD Ladder

Suppose you're satisfied with the security and stability of this savings instrument and are happy with the APYs you earn. In that case, another alternative after the CD is mature is to invest more funds into CDs through the construction of the CD ladder. This will allow you to take advantage of rate fluctuations, avoid penalties for early withdrawals, and save for various financial life goals. You can purchase several CDs with different maturities to form the CD ladder. When you have a CD ladder, you create a collection of CDs so that the date of maturity is never far into the future. This gives you more flexibility even when you have fixed dates.

Rolling Over

If you don't do anything and you've created an automatic rollover, the bank will likely transfer your money into a different CD of the same length as the one that recently has matured. For instance, if your six-month CD has reached maturity, it could be able to give you ten days following the expiration date to send specific instructions to your bank. If you fail to provide new instructions, your bank might transfer the funds to a new six-month CD. However, you may not be earning the same amount you did on the prior CD. Banks that roll over maturing CD accounts will be willing to pay the amount they offer to customers purchasing CDs for six months, which may be less or more than the amount you earned on your prior CD.

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