How To Renew A Certificate Of Deposit (CD)

When your certificate of deposit reaches its maturity date, you face a decision: You can renew the CD, withdraw your funds or explore other investment options. Most banks will automatically renew your CD if you take no action, but this convenience doesn’t always serve your best interests.

It’s important to understand the CD renewal process, so you can avoid missing opportunities for better rates elsewhere. The key is knowing your options before your CD matures and taking action during the brief grace period that follows.

What happens when a CD matures

When your CD reaches its maturity date, you can access both your initial deposit plus any interest earned during the term. Most CDs have set terms ranging from three months to 10 years, and your money remains locked in until this term ends.

If you take no action during the grace period, most banks will automatically renew your CD for another term of the same length. However, the new interest rate will reflect current market conditions, which could be significantly higher or lower than your original rate.

For example, if you have a five-year CD earning 2.75 percent APY that’s about to mature, the bank might automatically renew it for another five-year term at whatever rate they’re currently offering — maybe 4.50 percent or as low as 1.50 percent, depending on the interest rate environment.

The automatic renewal process typically begins immediately after your grace period ends, creating a new CD term with the same length as your original CD.

How to renew a CD

Most banks provide a grace period when a CD matures — typically from 7 to 10 days — during which you can choose to renew the CD or withdraw funds without penalty. This grace period usually begins the day after your CD’s maturity date.

For automatic renewal: Simply do nothing during the grace period. Your bank will roll over your funds into a new CD with the same term length at whatever rate they’re currently paying for that term.

For manual renewal with changes: You can contact your bank during the grace period to modify the term length, add additional funds or specify different instructions.

Many banks allow you to provide renewal instructions in advance, which can help you avoid missing the grace period deadline. Some institutions, like Ally Bank, let you set up automatic instructions for what should happen when your CD matures. If you do miss your CD’s maturity date, you do have some options.

Expert tip

“Generally, you shouldn’t let CDs automatically renew without shopping around first. Use Bankrate’s CD rate comparison tool to find the best rates at the right term length for your situation. What made sense when you first opened the CD might not be the best option today.”

— Hanna Horvath, CFP & Bankrate Banking Editor

Pros and cons of renewing a CD

Pros

• Automatic renewal makes it easy to keep your money growing in a CD.
• You may earn more after renewal compared to when you first opened your CD.
• You’ll still get FDIC insurance on your money.
• Renewal allows your funds to keep growing via compound interest.

Cons

• If your renewed CD’s interest rate is below the current inflation rate, your purchasing power decreases over time.
• You may be missing out on higher rates elsewhere if you let your CD renew without shopping around.
• Renewing locks your money away for another full term.
• You may miss out on even higher rates that become available later.

What to know before renewing a CD

Before deciding whether to renew your CD, gather the information that will help you make the best decision.

• Key dates and notifications: Mark your CD’s maturity date on your calendar and set up reminders. Banks are required to send written notice at least 20 days before maturity for CD terms of 30 days or more.
• Grace period details: Understand exactly how long your grace period lasts and what actions you can take during this time. Most grace periods range from 7 to 10 days, but some banks offer longer windows for certain CD terms.
• Default renewal policies: Know what happens if you take no action. Some banks automatically renew for the same term, while others might deposit your funds into a savings account or a shorter-term CD.
• Rate information: Find out what interest rate your renewed CD would earn and compare it to current market rates for similar terms.
• Early withdrawal penalties: Understand the penalties you’ll face if you need to access your money before the new term ends.

Use Bankrate’s CD calculator to calculate the potential return on your CD and compare different terms and rates to find the best option for your savings goals.

CD grace periods by bank

Understanding grace period policies at major banks can help you plan your renewal strategy. Based on current information, here are grace periods offered by popular institutions:

Some banks offer different grace periods based on CD term length. For example, Regions Bank provides 10 calendar days for CDs with terms greater than 31 days, but only one business day for shorter terms.

Note: Grace periods and policies can change. Always verify current terms with your specific bank before your CD matures.

Alternatives to renewing a CD

During your grace period, you have several options beyond automatic renewal that might better serve your financial goals.

Shop for better CD rates: Compare current rates from multiple banks and credit unions. You might find higher rates elsewhere, especially at online banks that typically offer more competitive yields. Consider different term lengths, too — a shorter or longer term might offer better rates depending on the current market.

Move to other savings accounts: High-yield savings accounts are currently paying rates that rival CDs while offering more liquidity. Money market accounts also provide competitive rates with some checking account features, giving you more flexibility than a CD.

Explore investment options: If you don’t need the money for several years, consider moving your money to an investment account where it might grow more substantially over time. Over the last 30 years, the average return of the U.S. stock market was 9 percent per year, as measured by the S&P 500 Index — more than double the rate of the best CDs.

Consider CD laddering: Instead of putting all your money into one CD, create a ladder with multiple CDs of different terms. This strategy provides regular access to funds as CDs mature while potentially capturing higher rates on longer-term certificates.

Making the renewal decision

If you’re still trying to decide whether to renew your CD or move the money elsewhere, consider these factors:

• Your liquidity needs: If you might need access to your money before another full CD term ends, choose more liquid alternatives like high-yield savings accounts or money market accounts.

• Interest rate trends: With the Federal Reserve’s interest rate decisions affecting CD yields, consider whether rates are likely to rise or fall in the near future when choosing your CD term length.

• Your overall savings strategy: Ensure your CD renewal decision fits with your broader financial goals and emergency fund needs.

• Rate comparison results: If you find significantly better rates elsewhere, the effort of moving your money is usually worthwhile for the additional earnings over time.

Bottom line

Renewing a certificate of deposit is a relatively simple way to ensure your funds continue to earn interest if you are able to lock them in for more time. However, it’s best to compare rates elsewhere and consider whether there are better alternatives before committing to another term.

Ready to explore your options? Compare today’s best CD rates to see what’s available in the current market, or explore high-yield savings accounts if you need more liquidity.