If you have a certificate of deposit (CD) that is maturing soon, it’s time to make a decision. Your CD has been collecting interest for months or years, helping you to get closer to your financial goals. Now you need to decide whether to roll it over to another CD, deposit it into another account, cash it out and spend it—or invest it.
Weigh your options
Before you decide what to do, it helps to consider all of your options. Be aware that your bank or credit union may rollover your CD automatically at the end of the term—unless you tell them not to. It’s also possible their new interest rate could be less competitive than other institutions. The bank or credit union is required to notify you in advance of the CD maturing and you may have a grace period—generally one to two weeks— to act on your decision, but it helps to have a plan first.
Here are options to consider:
- Let your bank renew your CD. This may be the easiest option—but not necessarily the best, depending on the rates and terms. If you do decide to renew and the rates are good, you may want to take advantage of the grace period and add more funds to your CD.
- Withdraw your CD funds and get a different CD. You can search the internet for the best CD rates available, and compare the rates listed on NerdWallet, Bankrate, Forbes, Investopedia, US News, SmartAsset, and other sites. We also have seen an increased interest in brokered CDs that we can offer clients (more on this below). It’s worth shopping around, especially in an era of higher rates we haven’t seen in some time.
- Withdraw and spend your CD funds. Maybe you’d like to buy a new car or take a well-earned vacation in the next month or two. If that’s the case, you might want to move your CD funds into a checking or savings account during the grace period so it will be more accessible.
- Move your funds to a traditional investment account. If you’re willing to accept more risk for potentially higher returns, this may be an intriguing option.
When—and why—talking to an advisor about your CD might be the best solution
CDs are extremely low-risk products and are insured by the FDIC (if they are held with an FDIC-insured institution). There is generally no market risk with a CD, and their interest rates vary based on market conditions, but are fixed for the term of the CD. CD terms usually range from three months to five years, and can be a great choice for someone who wants to lock-in an investment for a set amount of time, with set returns. There is a downside, though, if you need to access your CD funds before maturity. Early withdrawal penalties for CDs vary by institution, and are typically calculated as a set period of interest earned, such as 90 days or six months.
What you may not be aware of is that we as financial advisors can shop CD rates at multiple FDIC-insured institutions and purchase them in your investment account. The major difference between what we refer to as brokered CDs and bank CDs is that the way in which liquidity is gained prior to maturity is by selling the CD on the open market. As a result of this and the variability of interest rates, it is possible to lose principal when selling. If you have plenty of liquidity elsewhere though, these can potentially provide higher rates than bank CDs.
If you’re investing for the long term, your best option may be talking to us and moving your maturing CD funds into an investment account. A CNBC article from April 2023 pointed out that CDs were paying above 4% in a high-interest environment. So, while CDs may be considered a lower risk investment, they typically reward you with less of a return over a longer period of time. The breadth of investments available with different risk and return characteristics, may be a better fit for longer-term goals like retirement or college.
Ultimately, it’s worth reaching out to us to discuss all of the available options for your maturing CD so we can help you find the best fit for those funds.
1CNBC: What are brokered CDs and should you get one? April 17, 2023.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. CDs are FDIC Insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.