In exchange for higher interest rates, certificates of deposit (CDs) require that you commit to keeping your money in the bank for a fixed number of months or years. Your CD's end date, also known as its maturity date, is an important day to mark on your calendar. If you have a traditional CD account, the maturity date indicates when you can finally access your money penalty-free.
To prepare yourself for when your CD term ends, it's important to know what options you'll have by the time it hits its maturity date. Once the maturity date arrives, banks typically offer a one- to two-week grace period where you can decide what to do with your money. If you don't take any action during that brief window of time, the bank will decide for you, resulting in renewing your CD for another term.
Below, CNBC Select breaks down the three options savers have during their CD's grace period.
1. Renew your CD for another term
You may be OK with your bank renewing your CD for another term. In that case, as we mentioned above, you don't need to take any action during the grace period. Your bank will likely automatically renew your CD for the same term it originally had. For example, if you had a six-month CD, the bank will roll it over into a new six-month CD.
While this hands-off approach requires very little effort on your part, take notice of the current annual percentage yield (APY) being offered by the bank for that specific CD term. Your new CD's rate will most likely be at the new rate offered, rather than your original rate. This could be good news or bad news, depending on if the new rate is higher or lower than your original rate.
In addition to checking the APY being offered, if you decide to renew you may also want to consider adding more money to your initial deposit. Traditional CDs don't allow added contributions during their term, so this is your chance to increase your principal amount. Generally, larger deposits will earn you the most money.
Take advantage of CDs that reward you for renewing: With the Ally Bank High Yield CD, account holders are automatically rewarded when they renew their CD with a 0.05% Loyalty Reward added to their CD account, which boosts their APY slightly.
2. Move your funds to a different CD
If you decide to keep your money in a CD but want a shorter or longer term, this is the time to make the switch. During your grace period, you can withdraw your funds and deposit them into a different CD account, whether at the same bank or a completely separate bank.
You may want to transfer if you want term with a different length. Opt for a shorter term if you think you'll need access to that money sooner. Consider a longer term if you want to lock in a good interest rate and don't need the funds for some time.
Make sure you shop around for the best CDs and rates when choosing this option. Online banks offering high-yield CDs are usually your best bet, but make sure you know the fees ahead of time. The top ones offer APYs more than double the national average, are FDIC-insured, have zero monthly maintenance fees (which is typical of CDs) and low minimum deposits (requiring $1,000 or less) to open an account.
Check out CFG Community Bank CDs: CFG Bank offers the same low $500 minimum balance requirement on all its CDs, which makes this bank stand out from others.
3. Withdraw your funds completely
If you opened up a CD account specifically to save up for a certain goal, such as a down payment on a first home, then you likely have been waiting for this grace period to come.
Unless you have a no-penalty CD, it costs you to withdraw your funds before your CD term is up. Early withdrawal penalty fees vary depending on your bank and your CD's term length, but it's usually the interest earned, or the interest that you would have earned, over a certain number of days or months. Generally, the longer the CD term length, the costlier the withdrawal penalty.
This is why it's crucial you wait until the grace period to touch your money sitting in a CD account. With most banks compounding interest on your savings daily, it will be worth it in the long run.
If you didn't have a specific savings goal, you may want to withdraw your funds anyways and deposit them in something more accessible, like a checking account (for spending) or a high-yield savings account (to continue saving). If you are looking for a better return and can handle more risk, you also have the option of investing your matured CD funds (including the interest earned) in a brokerage account.
