A certificate of deposit, or CD, is an account that typically offers interest rates higher than what you can find with a regular savings account.

However, when you open many CDs, you agree not to withdraw your funds until a fixed date, called the "maturity date." 

What happens when a CD matures? Here are the options for what to do with your money.

Definition of CD Maturity

A CD's maturity occurs on the agreed-upon date on which your account's fixed term ends. Until this date, your CD earns interest, but you usually can't withdraw funds from the account without being penalized. 

Typically, CD terms range from three months to five years (although some banks offer shorter or longer terms). Generally speaking, the longer the CD term, the higher the interest rate the account earns.

Not all CDs penalize early withdrawals. However, when you make an early withdrawal from most certificates of deposit, you usually forfeit a portion of your earned interest. The U.S. federal government has set a minimum penalty of seven days' worth of interest if funds are withdrawn during the first six days following the opening of a bank account. However, there's no government-mandated maximum penalty[1]. 

However, it’s always a good idea to check with your bank’s terms before opening a CD to make sure you completely understand its policies.

What Happens When a CD Matures?

Once your CD reaches maturity, you can access both your initial deposit, referred to as your "principal," plus the interest the CD has earned over its term. In addition, some CDs continue to earn interest once they've reached maturity[2]. 

When your CD matures, you typically have a grace period during which you must determine what to do next with the account. Most grace periods last ten days, but this may vary based on your bank and the length of your CD's term.

If you don't do anything during the grace period, your bank may automatically renew your CD. This means you may not be able to withdraw your money — and the interest you previously earned — without facing a penalty until the CD reaches its next maturity date. 

Alternatively, some banks automatically send their customers payment for the CD balance, including both the principal and the earned interest. Other banks may keep your money in the account without paying interest.

Before opening a CD, learn what grace-period policies are in effect, as well as what happens if you don't act when a CD reaches maturity.

How Will You Know When Your CD Matures?

By law, banks must notify you in writing before your CDs reach maturity if the account term is longer than one year and the CD doesn't automatically renew[3]. This notice should also include information on your post-maturity grace period and if your CD continues to earn interest after the maturity date.

Many banks also send maturity notifications to their customers regardless of their CD terms.

However, when opening a new certificate of deposit, it could be helpful to mark the maturity date on your calendar or set a reminder on your mobile device. That way, you don’t have to rely on your bank when the maturity date arrives.

Your Options When a CD Matures

Once your CD reaches maturity, you have several options. Which option you should take depends on your unique financial situation.

When considering what to do with the funds in your CD, ask yourself these questions:

  • Do I need the cash immediately?
  • Can I find a higher interest rate with another CD or another account type?
  • What are my savings goals?
  • Am I content with my CD's previous interest payout rate and maturity term?

Here's a rundown of your options.

Renew the CD

Many banks automatically renew a CD that reaches maturity if they aren't instructed otherwise during the grace period. Typically, the new CD will have the same terms. That means it may take the same length of time to reach maturity and pay the same interest rate. 

If you are pleased with your CD's previous terms, this can be an acceptable solution. However, note that you may miss out on a higher interest-paying opportunity if your bank has raised its CD rates since you first opened the initial certificate of deposit account. In addition, your financial terms may have changed, or you may need the money more quickly than during the initial CD term.

It's a good idea to determine that there are no better options before renewing an older CD. 

In addition, you shouldn't assume that your bank will automatically renew the CD with the same terms. It would be wise to check your bank's policies ahead of time and contact your bank during the grace period to discuss all options.

Withdraw Your Funds and Keep the Cash

If you need the cash immediately, you can withdraw the principal deposit plus earned interest from the CD. To do this, notify your bank during the grace period (typically, the ten days following your CD's maturity date). Some banks may provide a check for the total amount, while others may transfer the funds into an available checking account. Once you withdraw all of the money from your certificate of deposit, the bank automatically closes the account.

The downside of this option is that your money will no longer earn interest. If you don't intend to spend the money right away, it might prove a better idea to allow the CD to renew or transfer the funds into another account with a different term or a higher interest payout. That way, you can keep your money working.

Reinvest the Funds Elsewhere

You can also choose to withdraw the funds from the matured CD and reinvest them another way. Here's a rundown of some popular options.

  • Move your money into another CD. There are several reasons why certificates of deposit can be a good investment: They're relatively safe, protected up to $250,000 by the Federal Deposit Insurance Corp. (FDIC)[4]. Also, they usually pay a higher rate of interest than typical savings accounts. Therefore, you may decide to reinvest your money into another CD that offers more favorable terms — such as a different maturity length or higher interest payout rate. You can also try a strategy known as a CD ladder to invest in several CDs with staggered maturity dates.
  • Choose a high-yield savings account or money market account. Some banks offer savings accounts with higher interest rates. This could be a good choice if you anticipate needing to access your funds before a set time, mainly because high-yield savings accounts don't have a maturity date. However, unlike most CDs, which feature fixed interest rates, the interest rate of a high-yield savings account or a money market account may fluctuate over time.
  • Contribute the money to a retirement account. Accounts such as IRAs (individual retirement accounts) and Roth IRAs help people save for retirement, offering tax benefits along the way. Retirement accounts are offered by a variety of institutions, including banks and brokerages. IRAs are designed to be held for longer terms than CDs, and there are significant penalties if you withdraw money before reaching a certain age[5].

The Bottom Line

Certificates of deposit can earn more money than a traditional savings account.

However, when you open a CD, you generally commit to locking your money in the account for a certain amount of time. If you withdraw early, you may have to give up some of your interest earnings as a penalty. 

Once your CD reaches the end of the agreed-upon term — in other words, once it matures — you may have a grace period during which you can decide what to do with your funds. Because there's no one-size-fits-all answer to what to do, consider your goals and options carefully before choosing a solution.