CD renewal: A complete guide

With fixed or variable interest rates, a certificate of deposit (CD) aims to offer predictable, stable returns with relatively low risk. But, while a CD might make saving more stable and forecasting your financial future a little simpler, there are some considerations to keep in mind before your next CD renewal. Let’s explore what happens when a CD reaches maturity and whether CD renewal might be right for you.

What is a CD renewal?

CD renewal involves taking the funds from a matured CD and reinvesting them into a new CD. This means you must wait until your CD reaches maturity to consider renewing it. When you renew a matured CD, the principal and any accumulated interest are reinvested into the new CD — often with a similar term length.

CD maturity, explained

A CD typically comes with terms during which any early withdrawals of the deposited funds come with penalties. The length of this term varies widely, ranging from a few months to several years, and is agreed upon when the CD is opened. Your CD is considered “mature” when it reaches the end of this term.

CD maturity and terms are the core mechanics of a CD that distinguish it from other types of savings accounts. When you open a CD, you deposit a sum of money for a specific length of time, during which the CD accrues interest at a rate set by your financial institution. The CD rate is usually fixed, providing a predictable return. In exchange for the reduced liquidity imposed by the term, a CD offers higher returns than traditional savings accounts.

Upon reaching maturity, the CD has fulfilled its term and your funds become available for withdrawal. The total now includes your original deposit plus the accrued interest. At this point, you generally have a few options: withdraw the funds and allocate them elsewhere — or renew the CD.

How CD renewal works

What happens when a CD matures? Typically, many financial institutions offer a grace period upon CD maturity that allows you to decide your next steps without immediately committing to either option. This period typically lasts from 7 to 10 days, but be sure to review your bank's renewal policy for their grace period information.

Do CDs automatically renew?

Typically, if you take no action during the grace period, your CD is automatically renewed. This means the funds are rolled over into a new CD with a specific term length. The interest rate for the new CD, however, generally depends on what the bank is currently offering for the term and may not be the same as the one on the original CD. While CD renewal is generally automatic, you may be able to preselect a different CD term length for your CD to be rolled over to upon maturity. Speak to your bank about their specific CD renewal policy and review your maturity notice to understand better.

CD Renewal pros and cons

When your CD matures, you can opt for a CD rollover via automatic renewal or withdraw your funds for other purposes. What you choose ultimately depends on what your financial goals are. Let’s explore some of the pros and cons of CD renewal to help decide which option might align with your goals:

CD renewal pros

• Convenience: A CD automatic renewal option provides a relatively hands-off way to continue your savings goals and aim for predictable returns within a set time.
• Fixed returns: A CD typically offers fixed interest rates, providing data to help make more informed financial decisions. This added specificity may be helpful when planning and setting future savings goals.
• Lower risk: Because a CD with FDIC-member institutions are FDIC-insured, many of them are generally considered more stable.

Cons of CD renewal

• Potentially lower rates: When a CD is renewed, the new interest rate might be different from the original rate. Depending on your bank’s rate at the time of renewal, this could be lower than your previous rate.
• Lower liquidity: With a CD renewal, your funds are locked in for another term. This may not be suitable for certain financial goals or situations based on the fact that a withdrawal before maturity could result in a penalty.

In summary

CD renewal might provide a convenient way to keep your savings growing. A CD renews automatically following a temporary grace period, with your funds rolling over into a CD with a similar term. Keep in mind, however, that your CD rate might not be the same or similar as the CD that just matured. Speaking with your respective bank can clarify the specifics of their CD renewal process and help you make a more informed decision.