CD renewal: how to renew a certificate of deposit

Renewing a CD is easy, but you’ll want to make sure it’s the right option

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A certificate of deposit (CD) is a bank-offered account that locks your money in at a fixed rate for a preset period of time. The account pays interest periodically for the duration of the CD, but withdrawals made before the maturation date are usually penalized.

Once the CD matures, you have to decide what to do with your money, so it's best to know ahead of time what your options are.


Key insights

  • Most CDs are automatically renewed by your bank.
  • Knowing your grace period is vital if you do not want your CD to renew.
  • You should reevaluate your goals before your CD matures so you can make the decision that is best for you.

What happens when a CD matures?

When a CD matures, you’ll receive your initial principal as well as any interest you earned. At this point, you have three options for what to do with the money:

  • Renew the CD: This is the easiest option, as banks will typically do this for you automatically. The interest rate is usually set at whatever your bank is paying for new CDs. Depending on your bank’s current rates, this could work in your favor or not — so be sure to comparison shop before letting your CD auto-renew.
  • Withdraw the funds: If you choose to withdraw funds, this is when you can do so without incurring any penalties. This is likely the best option if you’ve been saving for a specific goal that you’re now ready to act on, or if you’d like to have your money more readily accessible in a checking or savings account.
  • Roll the funds into another investment: You could decide to put the money into another CD with a better interest rate, or invest the money in stocks or mutual funds if you’re ready for something with a higher risk and reward.

Banks will generally notify you about the impending maturation of your CD a few weeks before it happens, giving you time to consider what to do with the funds.

Your bank will also tell you what your grace period is. The grace period is a specified period of time — usually about one week — in which you have to make a decision about what to do with the money in your CD. If you do not make a decision during the allotted time period, the bank may automatically renew your CD for you — which is why it’s important you are aware of this window.

» MORE: What is a good investment?

How to renew a CD

In all likelihood, you won’t have to do anything to renew your CD. Most banks have renewal as the default action after a CD matures.

In the event that it does not occur automatically, simply access your bank account and follow your bank’s instructions for CD renewal.

Pros and cons of renewing a CD

As with any investment, renewing your CD comes with pros and cons, depending on your risk tolerance, savings goals and comfort level.

Pros

  • Convenience: Simply allowing the CD to renew requires no work or effort on your part. You allow the CD to renew, and the bank reinvests it for you.
  • Avoids market risk: In a period of elevated stock market volatility, staying in a CD could provide the extra peace of mind you are looking for.
  • Comfort: Renewing your CD allows you to stay in a financial instrument you know and with the same bank.

Cons

  • Interest rate risk: You may be rolled over into a CD with an interest rate that’s lower than what you had or were expecting.
  • New duration: The bank may renew your CD with a longer duration, which may be a risk if you had planned on accessing the money earlier than the new maturity date.
  • Opportunity risk: Allowing your CD to renew means you may not be able to take advantage of other investment options that are better for you.

Alternatives to renewing a CD

If you decide not to renew your current CD but also don’t want to withdraw the money as cash, you have several alternatives:

  • Find a new CD: If you want your money to stay in a CD, you can shop around and see if other banks offer CDs with higher yields.
  • Put the money in a savings account: If you want to stay at your bank but don’t like the CD options available, you can check to see if your bank has a high-yield savings account.
  • Move to other low-risk investments. If you don’t want to stay with CDs but still want something that’s low-risk, you can look into bonds. Bonds function differently from CDs, but they can help you achieve the same goals.
  • Invest in the stock market. If you’re willing to take on more risk in exchange for potentially higher returns, you could choose to invest in the stock market. It is important to note that stock market investments are far riskier than investing in a CD.

» MORE: CDs vs. savings accounts: Which is right for you?

FAQ

Do CDs automatically renew?

Most CDs automatically renew. In order to be sure whether your CD does, check the documents you received from your bank when you opened the account.

What is a CD grace period?

The CD grace period is the short period of time after your CD matures when you can decide what happens with the funds.

What happens if I do nothing when my CD matures?

If you don’t respond to your bank’s notification that your CD is maturing, the most likely outcome is that the CD will be renewed or rolled over into another CD.

Do I pay tax on my CD withdrawal?

Yes, the interest you make on a CD deposit is taxed at your marginal tax rate.

Bottom line

If you’ve purchased a CD that is about to mature, now is the time to figure out what your next step is. Check rates on CD renewals at your bank, and compare them with alternatives. If your goals and plans have changed, consider alternatives such as stocks and bonds.

No matter what you go with, make sure you are sticking to your financial goals, and understand all your options so you can make the decision that is best for you.

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