If you have a CD coming to the end of its term soon, the first step is to ensure it doesn’t automatically renew before you choose what to do with your money. Even if you end up renewing it, you want to make sure you’re making that decision yourself. These steps will help you decide what to do next.
If you miss the maturity date, no worries: Many banks offer grace periods of seven to 10 days after the maturity date, during which you can cancel the CD and still have access to your money without incurring any penalties.
Next, you’ll decide whether you want to keep the money in the same CD or explore other options. This is vital, too, given that the Federal Reserve cut interest rates three times.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
While it has impacted APYs on some savings accounts, others haven’t dropped rates yet. Therefore, if you’re on course to reach your retirement plans and want to avoid any short-term market volatility and grow your earnings without much risk, here are some smart options to consider.
Let your CD rollover
(Image credit: Getty Images)
In some cases, it does make sense to let your CD rollover. If the rates remain the same and you’re satisfied with what you’re earning, then there’s no need to switch. Just make sure your bank will autorenew the CD for you and do a quick rate check before they do so.
This works best if you’re allocating some of your money to a less risky investment, don’t want to contend with shopping around, and you really like the bank you’re using.
However, if your financial goals changed, you want to try a new bank or you’re looking to grow your money in different ways, here are a few other options to consider.
Consider short-term CDs for maximum growth, flexibility
(Image credit: Getty Images)
If you don’t want to tie up your money for a long period of time, but also don’t want to face diminishing returns with rate cuts, a short-term CD could be a smart option for you. Finding a term from three months to one year ensures you lock in rates while they remain high.
It’s perfect, too, if you have any short-term savings goals you want to achieve over the next year, such as paying off debt or saving for a trip. What’s nice about a short-term CD is that you can get in, earn some money, not worry about Fed rate cuts (CDs have fixed rates) and get your money back quickly for other investments.
You can find and compare some of the best options using this Bankrate tool:
The only thing to remember is that with shorter-term CDs, you face a quicker turnaround time to reinvest those funds. If the Fed continues to cut rates, you’ll likely encounter lower APYs.
Gain peace of mind with long-term rate protection
(Image credit: Getty Images)
Another option worth considering is a long-term CD. The best five-year CD rates offer 4% APYs, and locking one in now could shield you from any future rate cuts.
They’re also great if you’re looking at longer-term savings goals. To demonstrate, you might be retiring in the next five to ten years, and want to earmark some money for a dream vacation or do some renovations before downsizing after you retire.
A five-year CD can help you reach these goals without worrying about lower APYs. The only thing to remember is that long-term CDs come with significant early-termination fees, with some levying up to a year of earned interest.
What if neither option sounds good, and you want some middle ground? Then CD laddering could be a smart approach. How it works is you take some money and spread it out over the course of multiple CDs. Here’s an example using $50,000:
- Open a six-month CD with $5,000
- Open a one-year CD with $10,000
- Open a three-year CD with $10,000
- Open a no-penalty CD with $5,000
- Open a five-year CD with $20,000
The goal of this approach is to stagger your maturity dates so you’re able to lock in higher rates for long-term growth, while also having quick access back to some of your cash to fulfill short-term goals or reinvest it in other avenues.
Stay liquid while exploring your next investing steps
If you’re unsure where to turn and don’t want to tie your money into a long-term CD, a high-yield savings account is still a smart choice to consider. Even though they have variable rates, many of the best high-yield savings accounts haven’t had significant drops since the Fed’s cuts.
Now, there’s no guarantee that it will stay that way, as some banks can take months to adjust after the Fed cuts rates. So far, though, you can earn APYs as high as 4.35%.
Best of all, you have access to your money whenever you want it. This is critical, too, if you’re at a juncture where you’re changing retirement allocations and need to park your cash and grow it before determining next steps.
Overall, these strategies can help you with the next steps after your CD matures. Whether you’re looking to save for goals as you near retirement or want some liquidity as you weigh next investment steps, these avenues allow you to reach your milestones your way.