When you open a certificate of deposit (CD), you commit to keeping your funds in the bank for a specified period. Upon the CD’s maturity, the bank releases your initial deposit along with the accrued interest.
Upon maturity of your CD, you have several choices. You can transfer the funds to another account within the same bank, renew it for a new CD, or choose to withdraw the cash. Your financial institution will notify you before the maturity date with detailed instructions on your available options.
Understanding CD Maturities
A certificate of deposit (CD) is a financial product offered by banks and credit unions that pays a fixed interest rate in exchange for leaving a deposit untouched for a predetermined period.
Effectively, a CD functions like a loan to the bank, with your funds being used by the bank for profit. In return, you receive a higher interest rate than a standard savings account.
CDs can have varying terms, ranging from a few months to several years. Typically, longer-term CDs offer higher interest rates.
As your CD approaches maturity, your bank or credit union will send you a notification outlining your choices, which usually include renewing the CD, transferring the funds, or withdrawing the money.
Failure to act promptly upon CD maturity may result in the funds being automatically rolled over into a new CD by the institution. Therefore, timely decision-making is crucial to avoid penalties.
Issues and Problems
Several issues may arise concerning CD maturities that necessitate prompt action to prevent penalties.
In the event of failing to act quickly upon receiving maturity notice, the CD may be automatically renewed by the bank, leading to potential penalties for early withdrawal.
Federal regulations stipulate minimum penalties for early CD withdrawals beyond a specified grace period, with potential variations in penalties among financial institutions. It is advisable to review the withdrawal fees to avoid receiving less than your original deposit.
Can You Close a CD Before Maturity?
Yes, early termination of a CD is possible but may result in penalty charges, as specified in your account agreement.
How Long Is a CD Grace Period?
The duration of the grace period for CD maturity varies across different banks and credit unions. While some institutions offer grace periods as short as one day, others provide longer intervals for account closure.
Can I Avoid CD Early Withdrawal Penalties?
Occasionally, banks may waive early withdrawal penalties for CDs, although this is not a mandatory requirement under the law.
The Bottom Line
When engaging in a CD, you commit to keeping your funds deposited for a specific term. Upon maturity, your bank or credit union will provide options to either withdraw the funds, transfer them, or roll them over into a new CD. Timely action and decision-making are crucial to avoid potential penalties.