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Consider your options before it automatically renews

If you have a certificate of deposit (CD) that is 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 you need to decide whether to roll it over to another CD, deposit it into another account, cash it out and spend it—or invest it.

Weight your options

Before you decide what to do, it helps to consider all of your options first. 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 in advance before the CD matures, but you should scope out your options in advance. You’ll have a grace period—generally one to two weeks—to act on your decision, but it helps to have a plan first.

Here are options to consider:

  • 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 do decide to renew and the rates are good, you may want to take advantage of the grace period and add 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, and 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 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, and 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 and moving your maturing 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

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

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. Investing involves risks including possible loss of principal.

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.

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Barnes Capital Group, a Registered Investment Advisor. Barnes Capital Group is a separate entity from LPL Financial.

The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

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