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Certificate of deposit (CD) accounts became a popular investment option in recent years as interest rates soared thanks to the Federal Reserve’s inflation-fighting policies. Many high-yield CDs offered rates topping 5.00%, presenting an unprecedented opportunity to earn a generous ROI with minimal risk.
For many investors who opened these accounts at these record-high CD rates in the post-pandemic era, their CD maturity date may be fast approaching. Their rate is only fixed — and their money is only locked up — until that date arrives.
If you are one of those investors and your CD is maturing in December, you’ll have to make some tough choices about what to do with the money invested. You do have multiple options, however, so it helps to know what experts suggest.
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4 moves to make if your CD matures this December
Here are four moves savers should consider making if their CD is set to mature this December:
Check for auto-renew
Anyone whose CD term is ending in December has a critical step to take immediately. “Check your current CD for any auto-renewal provisions,” advises Chad Gammon, a certified financial planner and owner at Custom Fit Financial. “You don’t want to be surprised to find out that you are locked into another term unintentionally.”
When your CD term ends, you’ll usually have a short grace period to act before your bank can renew your certificate at the current CD rates. Those rates may be well below the yields you were being paid.
Unfortunately, if you don’t redirect the money and the bank puts you into a new CD with a low rate, you’d be stuck for the CD term if you wanted to avoid early withdrawal penalties.
You don’t want to lose the opportunity to shop around for a good CD interest rate — or, worse, take the time to research the best CD types to choose now only to find your choice has been taken away because you’ve already been reinvested and are locked in.
See how much you could be earning on your money with one of today’s top CD rates now.
Consider your financial goals
As long as you’ve turned off auto-renew, you’ll have a choice of what to do with your money when the CD maturity date arrives. To make that decision, take the time to think about your goals.
“What you should do if your CD matures in December depends on your financial situation,” advises Domenick D’Andrea, AIF, CRC, CPFA, financial advisor, and Co-Founder of DanDarah Wealth Management.
For some people, it may be best to use some of the money for immediate needs. “I’d suggest using some of the funds instead of going into debt during the holidays,” D’Andrea advises — and Gammon agrees. “If you need the funds from the CD within the next few months, such as to pay for holiday spending, it would make sense to use the CD for that,” Gammon says.
If you don’t plan to spend right away but need the money soon, keeping it accessible while maximizing your ROI is the top priority. “If you need access to this money in the short term, consider more liquid accounts that still provide competitive rates compared to standard savings accounts,” George McFarlane, president of 7 Waters Advisors suggests. “High-yield savings accounts or money market accounts can be excellent choices in this situation.
Of course, while it’s better than borrowing, spending the money from your maturing CD comes at an opportunity cost, and isn’t right for everyone. “If you have a CD maturing in December, you’ll likely want to reinvest those funds to maintain your purchasing power,” advises Jonathan Ernest, Economics professor at Case Western Reserve University.
Research current CD offers
If you decide to reinvest, your risk tolerance, investing timeline and available alternatives will dictate where to put the money. If you’ll need the money in around five years or less, reinvesting your CD could be your best course of action — but you don’t just want to accept whatever rates your bank has on offer.
“Look for higher rates with longer terms, as this could help you secure better returns despite falling interest rates,” McFarlane suggests. “This may involve searching online for rates that are higher than what local banks offer.”
Gammon also stresses the importance of shopping around and suggests there may be some good buying opportunities this month. “Research interest rates from not only the bank from your current CD but also other financial institutions,” he said. “There will probably be end-of-year promotions on CDs from some institutions.”
Even with these promotions, current yields may come as a disappointment. “The Fed has already lowered rates by 75 basis points, so you are not likely to find a rate as high as the maturing CD,” D’Andrea warns.
Like McFarlane, D’Andrea suggests that smaller banks or online banks may provide better rates. He also has some advice on what CD term to select. “If you’re going to lock these funds into a new CD, I would suggest you choose the longest term you’re comfortable with because I believe we will see further rates decrease over the next few years. You’re not likely to be able to match today’s rates again.”
Ernest also points out that, while rates are not at post-pandemic peaks, they’re still high by historical standards — especially if you find the best offers.
Explore alternative investment options
Finally, you could also consider other investments beyond CDs.
“If you have a CD maturing in December, before reinvesting, take a moment to re-establish what your objective is for those dollars. Ask yourself if these dollars still need to be conservatively invested or if your time horizon or risk tolerance has changed,” Jeff DeLarme, CFA, CFP, and President of DeLarme Wealth Management, Inc. advises.
If you’re able to take on more risk or have a longer timeline, there are plenty of other investments that could provide better returns than CDs.
“You might explore alternatives to CDs, such as I Bonds or fixed annuities,” McFarlane suggested. “These options often provide slightly higher rates and greater liquidity. For instance, fixed annuities typically allow you to withdraw 5 to 10% of your balance annually without penalties. They also offer longer terms, enabling you to lock in higher rates for extended periods.”
DeLarme also points out that these alternatives could have some tax benefits as well. “A CD is typically fully taxable whereas a Treasury Bill may generate interest that is exempt from State income tax,” he says. “When you consider the potential tax savings, a Treasury Bill may be a more attractive vehicle and could be a more liquid investment relative to some bank CDs.”
Of course, the stock market is another option as well. “If you have some appetite for risk, you could consider investing in equities and hope that a Santa Claus Rally boosts stock prices in the last week of the year,” Ernest suggested.
The good news is, each of these options can make good sense in the right circumstances. Just take the time to consider the pros and cons to decide what’s best — and don’t let your CD auto-renew because otherwise, you’d lose the ability to make your choice.