How Certificate of Deposit (CDs) Maturities Work

When you take out a certificate of deposit (CD), you agree to leave your money in the bank for a set period of time. When the term of the CD ends, the bank will release the money to you, along with the interest it earned. This is known as the CD maturing.

You have several options when your CD matures. You can deposit the money in another account at the bank, like your savings account. You can roll it over into a new CD at the bank. Or you can take the cash. The bank or credit union that holds your CD will write to you shortly before it matures and will give you instructions on your options.

Understanding CD Maturities

A certificate of deposit (CD) is a type of investment offered by most banks and credit unions that pay interest at a set rate in exchange for the customer agreeing to leave a lump-sum deposit untouched for a set period of time.

Effectively, you're granting a loan to your bank. They're loaning the money out elsewhere (at a profit). You're getting a better interest rate than you would with a standard savings account.

You can take out a CD that runs for a few months or for many years. Generally, the longer the term is, the higher the interest rate you will get.

In the month or two leading up to your CD’s maturity date, the bank or credit union will notify you that the end of your CD term is coming up. This message should also include instructions on how to tell them what to do with the maturing funds. Typically, they will offer you three options:

• Roll over the CD into a new CD at that bank. Generally, this would be into a CD that most closely matches the term of your maturing CD. For example, if you have a 1-year certificate concluding, they would likely offer to roll your balance into a new 1-year CD.
• Transfer the funds into another account at that bank. Options include a savings, checking, or money market account.
• Withdraw the proceeds. The money can be transferred to an external bank account or mailed to you as a paper check. 

In any case, the communication to you will stipulate a deadline for you to provide instructions, with an indication of what the institution will do in lieu of receiving your guidance. In many cases, the default move will be to roll your proceeds into a new CD.

Issues and Problems

There are a couple of potential problems to be aware of when it comes to CD maturities.

The first is that you need to act quickly once you receive notice that your CD is about to mature. The account enters a grace period after it reaches maturity that may not last long, depending on the terms of your CD. Your bank may automatically roll over your CD into a new one if you don't close the CD within the grace period. At that point, you'll have to pay a penalty if you want to access the funds before the next maturity date.

The exact amount of the penalty will depend on the bank or credit union. Federal law specifies a minimum penalty for withdrawal within 6 days beyond the grace period for rollovers but there is no maximum. You should check these fees before you withdraw money from your CD. At worst, you could get back less money than your original deposit.

The Bottom Line

When you take out a CD, you agree to leave your money in the account for a set amount of time, known as the term length of the CD. At the end of this period, the CD will mature and your bank or credit union will release your money, along with the interest you’ve earned. At this point, you can take a check, deposit the money in another account, or roll it over into another CD.

Your CD provider should write to you in the weeks before your CD matures. This message will outline your options and how you can tell the bank your decision.