How a CD’s Maturity Date Impacts Your Return on Savings
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- By Casey Bond
- November 19, 2012
When you open a certificate of deposit account, that CD will “mature” at some point in the future. It’s important to understand what the maturity date of your CD means, because withdrawing money before that date can result in losing all the interest you earned.
What Is a CD Maturity Date?
CDs are considered time deposit accounts, which means a deposit must remain untouched for a set period of time in order to earn interest. The date that the depositor is finally allowed to withdraw money is called the maturity date. Certificates of deposit can mature after just a few months, or up to several years — the length of the CD term is up to the depositor.
Generally, the longer the term of the CD (the further away the maturity date), the higher the CD rate that will be offered on the account. This makes it tempting to opt for a long-term CD in order to earn more interest, but don’t forget that you can’t withdraw any of that money until the CD matures. Early withdrawal from a CD usually results in a hefty penalty, which will wipe out any interest earned and maybe even some of the principal deposit.
Why Knowing Your CD Maturity Date Is Important
Typically, when a CD reaches maturity, your bank or credit union will automatically renew the account — the funds will “rollover” into a new account with the same terms, unless they receive instructions from you to do otherwise. The problem is that if you planned to use the money rather than reinvest it, or if interest rates have gone up since you first opened the account, you will lose access to your money until the new account once again reaches maturity.
That’s why it’s important to keep track of your CD’s maturity date and take an active role in what happens to your deposit. If you aren’t paying attention, you may find your cash tied up in a lower-rate CD.
It’s fairly simple to keep track of your CD maturity date. First be sure you mark the date on a calendar, or set a reminder in your e-mail or phone. Your bank will also send you a notice when your CD is about to mature and request your instructions on how to proceed. There will usually be a grace period of about 10 ten days during which you can respond.
By paying close attention to the maturity date on your CD, you will ensure that you choose the most advantageous term length and keep control of your deposit once it does mature.