Know Your Options Before Your CD Matures

Before it automatically renews, decide what to do when your CD matures

If you have a certificate of deposit (CD) 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, before your CD matures, you need to decide whether to roll it over to another CD. Or, you could 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. And, it’s possible their new interest rate could be lower. The bank or credit union is required to notify you before the CD matures. You will also have a grace period—generally one to two weeks— to act on your decision. But its a good idea to scope out your options and create a plan in advance.

Here are options to consider before your CD matures:

• 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 decide to renew and the rates are good, you may want to consider adding 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. Compare the rates listed on NerdWallet, Bankrate, Forbes, Investopedia, US News, SmartAsset, and other sites. The interest rates you see may prompt you to try a new bank or credit union, or stick with your current one.
• 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 brokerage account. If you’re willing to accept more risk for potentially higher returns, this may be your best 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 also no market risk with a CD and they can be a good option when inflation is high. Their interest rates climbed into the double digits in the 1980s when inflation rates were also high. CD terms usually range from three months to five years. They 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.

But if you’re investing for the long term, your best option may be talking to an advisor. You may choose to move your CD funds into a brokerage account. A Forbes article from September 2022 pointed out that CDs were paying above 3% in a high-interest environment, but the historic annualized average return of the S&P was 11.88%.¹ So, while CDs may be considered a safer investment, they typically reward you with less of a return over a longer period of time.

If you’re not sure which option will help you on your path to financial success, connect with one of our financial advisors.

¹Forbes: What Investors Need To Know About Certificates of Deposit: Pros & Cons Of Rounding Out Your Portfolio With CDs, September 19, 2022

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Important Disclosures

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.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This material was prepared by LPL Financial.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.

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