Accessing funds from a Certificate of Deposit (CD) or closing the account typically depends on whether the CD has reached its maturity date. A CD is a savings account that holds a fixed amount of money for a fixed period, and in return, the issuing bank pays interest.
When it comes to "removing" funds or closing a CD, there are two primary scenarios:
1. At CD Maturity
Once your Certificate of Deposit reaches its maturity date, you have several straightforward options for accessing your funds without penalty. As the reference states, "Once your CD reaches its maturity date, you can tell your bank or credit union to roll the money over into a new CD, deposit it in another account, or pay you in cash."
Here's a breakdown of your choices:
- Roll Over into a New CD:
- You can reinvest your principal and accumulated interest into a new CD. This is often an automatic process unless you instruct otherwise.
- You might choose a CD with a different term (shorter or longer) or a different interest rate, depending on current market conditions and your financial goals.
- This option allows your money to continue earning interest.
- Deposit into Another Account:
- You can instruct your bank or credit union to transfer the funds (principal plus interest) into another account you hold with them, such as a checking or savings account.
- This provides immediate liquidity for the funds.
- Receive a Cash Payout:
- You can request that the bank pay you the funds directly. This might be in the form of a check mailed to you or a direct deposit into an external bank account you specify.
Most financial institutions offer a "grace period" after the maturity date, typically 7 to 10 days, during which you can make your decision without penalty. If you don't provide instructions during this period, the bank may automatically roll your CD over into a new one with a similar term.
Summary of CD Maturity Options
| Option | Description | Benefit |
|---|---|---|
| Roll Over CD | Reinvest principal and interest into a new Certificate of Deposit. | Continue earning interest; potential for higher rates. |
| Deposit into Account | Transfer funds to a checking or savings account. | Immediate liquidity for funds. |
| Cash Payout | Receive funds via check or direct deposit to an external account. | Direct access to the full amount. |
2. Before CD Maturity (Early Withdrawal)
If you need to access your money from a CD before it reaches its maturity date, this is known as an early withdrawal or early closure. As highlighted in the reference, "If you decide to close a CD before it matures, you generally have to pay a penalty."
Understanding Early Withdrawal Penalties
- Penalty Imposition: Banks impose these penalties because they rely on CD funds being held for the agreed-upon term to manage their assets and liabilities.
- Penalty Calculation: The penalty typically involves forfeiting a certain amount of interest earned, often equivalent to several months' worth (e.g., three or six months of interest, depending on the CD term and the bank's policies). In some cases, if the accrued interest is less than the penalty, it could even reduce your principal.
- Reviewing Terms: Before opening a CD, it's crucial to review the specific early withdrawal penalty terms outlined in your CD agreement.
Steps for Early Withdrawal
- Contact Your Bank: Reach out to your bank or credit union directly. You'll need to inform them of your intention to close the CD early.
- Understand the Penalty: The bank representative will inform you of the exact penalty that will be applied to your specific CD.
- Confirm Withdrawal: Once you understand and agree to the penalty, the bank will process the early withdrawal, deducting the penalty amount from your principal or accrued interest. The remaining funds will then be disbursed to you, usually by transfer to another account or a check.
While early withdrawal is possible, it's generally best to avoid it due to the financial penalties involved. CDs are designed for funds you don't anticipate needing until the maturity date.
