What to Do With CDs When You’re an Adult?

When a certificate of deposit (CD) matures, you have options, including renewing, cashing out, and more. So, what’s your next step when the CD is ripe?

You may have a grace period—often 10 days or more—to decide what to do and give your bank instructions. Doing nothing usually results in the CD being updated automatically—your money will be moved to a new CD, and the process starts over.

However, renewing isn’t necessarily your best bet, and it’s always wise to proactively choose what happens to your money rather than letting your bank do it for you. Here are some options for you to consider.

Key Takeaways

  • By the time your CD matures, your financial goals may have changed since you opened the account.
  • If you want to renew your CD, be sure to shop at banks and other credit unions for the best interest rates.
  • Money market accounts and liquid CDs offer more flexible withdrawal rules.
  • The CD ladder offers some flexibility by investing a smaller amount in multiple CDs that mature every six months or so.
  • With the money from your CD ripe, consider whether you should put the money in savings, pay off debt, or invest for the long term.

Evaluate Your Financial Goals

When your CD is due, take the opportunity to evaluate your financial goals and your current financial position. How is your financial situation? What are your financial goals? Do you want to keep the money on a CD, or is it better to keep it somewhere else?

When you first bought a CD, it might have made sense, but several years may have passed since then, and a lot could have changed during that time. If you end up reinvesting into another CD (or letting your bank do it for you), make sure it’s a conscious decision and not a default choice.

Evaluating your finances also helps you avoid using your CD proceeds for shopping the way you might with money you found in old jeans. Instead of spending money on the first thing that catches your eye, remember why you bought the CD in the first place. Maybe it’s for a down payment, your next car, or a safety net for life’s surprises.

You don’t have to decide right away. If you need some time to think about it, move the money into a savings account while exploring options. You can reinvest in the CD if, and when, you are ready. Unless your bank provides an incentive to renew automatically, a temporary hiatus will not significantly affect your finances, especially if you keep your funds in a high-yield account.

Have a look

Your current bank may have offered a good CD price when you first bought your CD, but other banks can be more attractive now. See how much more you can earn by switching banks, but don’t jump ship unless it’s worth it. Calculate how many more dollars per year you would earn if the switch was tempting, and be sure to include credit unions in your search.

Changing banks takes time and energy, and your money may not earn any interest as it moves between banks, so sometimes switching isn’t worth it.

Consider Other Types of Saving Accounts

If you decide you want to keep your money safe, evaluate all alternatives to your new CD option. Some types of government-insured bank accounts provide security and little interest income.

Liquid CD

Your money has been locked for a long time, and now it’s free. If you like how it feels, consider using a liquid CD that allows penalty-free withdrawals (more or less) at any time. The trade-off is that you usually get a lower interest rate when you choose freedom, but that may be a price you’re willing to pay.

Money Market Account

CDs often pay more than savings accounts, but they may not pay significantly more, and money market accounts are more accessible. If you value flexibility, explore money market accounts, which can pay for almost as much as a CD while allowing you access to your cash. Money market accounts are not as liquid as checking accounts, but your cash will be more accessible than on a CD. For example, you might accept a checkbook or debit card for occasional expenses.

Money market accounts typically limit customers to six withdrawals per month, but certain types of transactions—such as ATM withdrawals—may not count towards the withdrawal limit.

CD ladder

The CD ladder offers some flexibility by investing a smaller amount in multiple CDs that mature every six months or so. They allow you to access money more easily while still enjoying the features of a CD.

The CD ladder can also be more beneficial than locking a single long-term CD if interest rates rise. Each time the CD matures, you will have the opportunity to reset the interest rate. However, this can have the opposite effect when interest rates fall.

Pay Off Debt

Another option is to use the money to pay off the loan. Evaluate how much you pay in interest compared to the interest you earn on the CD. If you have toxic loans like high-interest credit card debt, you may be better off writing off the debt (and cutting the cards).

Before you pay off some of the debt, make sure you can do it without completely depleting your cash savings. Cash provides security, and you can use it to make high-priority payments (such as mortgages, car expenses, and health care costs). Using cash to pay off debt means you have less cushion to lean on.

At the same time, you could potentially eliminate some monthly payments, which frees up cash flow to rebuild your savings. You can also minimize interest costs by paying off debt. These are the factors that you should consider before deciding one way or another.

It is always wise to have emergency cash available in a bank account. If you want to reduce your debt, that’s a good idea. Just decide how much (if any) to save for any surprises. An emergency fund has the potential to help you avoid debt when something happens.

Long term investment

If you have plenty of cash and no debt, you may want to consider different types of investments for long-term goals (such as retirement). CD is safe, and that’s probably what you need. However, if you have a long time horizon and the ability to take more risk, a diversified portfolio with a mix of stocks and bonds may be more appropriate than a CD.

Frequently Asked Questions (FAQ)

Which bank has the best CD rates?

Online banks usually have the best rates for CDs and interest-bearing accounts, but the best CD rates often come from credit unions.

When will CD rates go up?

Interest rates usually increase as the economy improves. Tracking the fed funds rate is one of the simplest ways to measure the inflation environment. Any movement in the fed funds rate trickles down through the economy; when it drops, so do CD rates.

How long does it take to unfreeze a CD?

If you plan to wait for the CD to mature, the time it will take to unfreeze will depend on the type of CD you purchased. A three-month CD takes three months to cash out, for example. You may also be able to get off the CD early, and while there may be additional costs, you should be able to unfreeze it almost instantly. The only delay is the time it takes to transfer funds to the checking account.

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