Have a CD Coming Due? 3 Options to Consider

Here's what to do with a certificate of deposit that's about to mature.

Saving money in a certificate of deposit, or CD, is a good bet if you want a safe place for your money and you also want to remove the temptation that you'll spend that pile of cash. That's because CDs penalize you to the tune of several months of interest if you cash them out before they're set to come due.

If you have money in a CD that's close to maturing, you may be unsure what to do with it. Here are three options you can look at.

1. Roll it into a new CD

If you don't expect to need the money in your CD anytime soon, and you're also not ready to invest it, then it could pay to roll it into another CD. But if you're going to do so, stick to a shorter-term CD, not a longer one.

These days, interest rates on CDs are painfully low. Granted, the same holds true for savings account interest rates, only with a savings account, you're not committing to locking your money away for a preset period of time like you are with a CD. As such, if you put money into a savings account and interest rates rise, you'll be able to take advantage of those higher rates once they become available.

When you roll an expiring CD into a new CD (or renew your existing one), you lock in a new interest rate that stays in place throughout the CD's term. But right now, that rate isn't likely to be very attractive. As such, you're best sticking to a six-month or one-year CD at most. That way, you'll probably get a little more interest on your money than you would with a savings account, but you'll limit your risk of losing out on higher interest rates down the line.

Interest rates are unlikely to go up much for at least another year due to the fact that the Federal Reserve has pledged to keep rates low through the end of 2022. While the Fed doesn't set bank account interest rates, it can influence them. But rates could still creep upward slightly at any time, so you'll need to be careful about not locking yourself into too long a CD right now.

2. Transfer it into a regular savings account

Sometimes, you'll earn a lot more interest keeping your money in a CD than in a savings account. But these days, that's not the case, so it could make sense to move your money into a savings account once your CD comes due. That way, you'll have more flexibility with it.

The only reason not to go this route is if you have a tendency to dip into your savings for nonessential purchases, and you want to limit that temptation. If so, keeping your money in a short-term CD may be a better bet, as the aforementioned penalty may be enough to deter you from accessing that cash.

3. Move it into a brokerage account

If you have enough money in the bank for emergencies, and the cash you have in your CD is really just extra savings on top of that, then it could pay to move that money into a brokerage account and invest it once your CD comes due. When you invest in a brokerage account, you do run the risk of losing money. (That risk doesn't exist with a savings account or CD as long as your account balance doesn't exceed $250,000.) But you also have an opportunity to score a much higher return on your money than you'll get at a bank.

Right now, you might get an annual interest rate of 0.40% to 0.60% in a savings account or 0.50% to 0.70% in a one-year CD. By contrast, you might generate a 7% return in your brokerage account by investing in stocks. (That 7% is several percentage points below the stock market's average.) This means that if you roll a $5,000 CD into a brokerage account and earn 7% interest, you'll come away with $350 in a year. If you earn 0.50% in a savings account or CD, that $350 shrinks to $25, or one-fourteenth of what you'd potentially get by investing.

Generally, you'll need to decide what to do with a CD before the day it's set to mature, so if that deadline is coming up, now's the time to assess your choices. There are pros and cons to all of the options above, so think about which one works best for you.