When a certificate of deposit reaches the end of its term, your bank stops paying the interest rate you locked in and opens a short grace period — usually 7 to 10 calendar days — during which you can withdraw the money, change the term, or move it elsewhere without an early withdrawal penalty. If you do nothing before that window closes, the bank automatically rolls your balance into a new CD, typically for the same term, at whatever rate it is currently offering. That new rate may be well below what you were earning, and once the renewal takes effect your money is locked in again. So what happens when a CD matures depends almost entirely on whether you act inside the grace period.
The Grace Period Is Your Penalty-Free Window
Most banks give you 7 to 10 calendar days after maturity to decide what to do, though some offer longer. Federal rules require banks to disclose whether a grace period exists and how long it lasts, but do not set a universal minimum length.1eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD) In practice, nearly every bank that auto-renews CDs provides one.
The reason this window exists matters. Federal regulations classify CDs as “time deposits,” which must carry an early withdrawal penalty of at least seven days’ simple interest.2eCFR. 12 CFR 204.2 – Definitions During the grace period your old CD has already matured and the new one has not locked in, so pulling the money out is not treated as early. Once the window closes, the auto-renewed CD is a brand-new time deposit, and touching those funds before the new term ends will trigger a penalty.
The Maturity Notice You Should Have Received
For any CD longer than one month that renews automatically, your bank must send you a notice before maturity. Under Regulation DD, the notice has to arrive at least 30 calendar days before the maturity date. A bank may instead send it at least 20 calendar days before the grace period ends, as long as the grace period is at least five calendar days.3eCFR. 12 CFR 1030.5 – Subsequent Disclosures
For CDs with original terms longer than one year, the notice must include the new interest rate and annual percentage yield for the renewed CD. If those rates have not been set yet, the notice must give the date they will be determined and a phone number you can call to find out.3eCFR. 12 CFR 1030.5 – Subsequent Disclosures It should also state whether a grace period applies and how long it runs. If nothing arrived, call your bank. The disclosure is a legal requirement, and without it you may not learn the renewal rate until it is too late to act.
Your Options During the Grace Period
You have several choices, and the right one depends on your goals and where interest rates sit right now.
- Renew at the same term. Your full balance rolls into a new CD of the same length. This is the default — what the bank will do automatically — but the rate on the new CD may differ from the one you just earned.
- Renew at a different term. Move to a shorter or longer CD. You might switch from a one-year to a three-year CD if longer terms pay more, or shorten the term if you expect to need the money soon.
- Withdraw everything. Transfer the principal plus interest to a linked checking or savings account, request a check, or wire the funds to another institution.
- Take a partial withdrawal. Pull out some of the money and renew the rest. You might withdraw just the interest and reinvest only the original principal, or take a portion of the principal for a specific expense.
Compare the renewal rate your bank is quoting against rates at other institutions before you decide. A matured CD is one of the few moments when the money is fully liquid without penalty, which makes it the natural time to shop around. If you plan to wire funds to another bank, ask about the fee first; domestic outgoing wires at most banks run roughly $15 to $30, though this varies.
How to Submit Your Instructions
Most banks let you handle a maturing CD through several channels. Online banking portals usually have a maturity options page where you can pick your choice and get an electronic confirmation. You can also stop into a branch or call customer service. Some banks accept mailed instructions, but given how short the grace period is, mail carries a real risk of arriving late.
Whichever channel you use, be ready to specify whether you are renewing, withdrawing, or splitting the balance, along with the destination for any withdrawn funds — a linked account number, a mailing address for a check, or the routing and account numbers for an account at another bank. Save the confirmation. It is your proof that you acted inside the window.
What Happens if You Miss the Window
If you give no instructions before the grace period ends, the bank will renew the CD for you. The new CD will typically carry the same term as the original but at whatever rate the bank is currently paying, which can be well below your previous rate.4HelpWithMyBank.gov. My Certificate of Deposit (CD) Matured, but I Didn’t Redeem It. What Happened to My Funds? Promotional rates that attracted you to the original CD rarely carry over into an automatic renewal.
Once the auto-renewal takes effect, the money is locked in for the entire new term. Any withdrawal before that new maturity date is treated as breaking the CD, and early withdrawal penalties apply.2eCFR. 12 CFR 204.2 – Definitions Those penalties typically range from three months of interest on shorter-term CDs to six months or more on longer-term ones. Missing the grace period does not just cost you a better rate; it can keep you from your funds for months or years.
IRA CDs Follow Different Rules
A CD held inside an IRA behaves differently at maturity. Renewing it or moving the balance into another investment within the IRA keeps the money tax-advantaged and triggers no tax. Taking a distribution — meaning the funds leave the IRA — is where the tax rules kick in.
If you are younger than 59½ and take a distribution, the IRS applies a 10% additional tax on the taxable portion, on top of ordinary income tax.5Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts Some exceptions apply, including disability, certain medical expenses, and first-time home purchases up to $10,000.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
To move a matured IRA CD to a different institution, the cleanest route is a trustee-to-trustee transfer, where the funds go directly from one IRA custodian to another. If the funds are instead paid to you (an indirect rollover), the bank will withhold 10% for federal taxes unless you elect out, and you have 60 days to deposit the full amount, including the withheld portion, into another IRA or retirement plan to avoid tax and penalties on the distribution.7Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Taxes on the Interest You Earned
Interest earned on a regular (non-IRA) CD is taxed as ordinary income. Your bank will report any interest of $10 or more on Form 1099-INT, which you receive each year and report on your federal return.8Internal Revenue Service. About Form 1099-INT, Interest Income For a multi-year CD, the IRS generally treats interest as taxable in the year it is credited to your account, not the year the CD matures, so you may have already paid tax on most of the interest by the time you reach the maturity date.9Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID Only the interest credited in the final year is new for tax purposes when the CD matures.