CD Coming Due This Month? Ask Yourself These Questions Before Renewing It

Putting your money into a CD is a good way to snag a higher interest rate than what a savings account might be paying. CD rates tend to be higher than savings accounts rates because they're less flexible. With a CD, you're required to tie your money up for a certain period of time. And you'll generally face penalties for cashing out a CD before it matures.

If you have a CD coming due this month, you may be inclined to renew it. But before you do, run through these key questions.

1. Have I dipped into my emergency fund recently?

You may have needed to take an emergency fund withdrawal to cover a home or vehicle repair over the past few months. Before renewing your CD, see how much money you're left with in emergency savings. You may want to take some of the funds from your CD and put them into a regular savings account to replenish the emergency fund money you had to remove.

2. What interest rate is my bank offering?

Don't assume that the interest rate you locked in on your CD is the rate that's available right now. Chances are, if anything, the rate you can get today is higher, but it's still important to check and see what your bank is actually paying before renewing your CD. 

3. Can I get a better rate at another bank?

There's nothing wrong with spreading your money across different banks. If you have a CD coming due at one bank, and it's also where you have your savings and checking account, but another institution is offering a higher interest rate for the CD term you're looking at, put your money elsewhere.

4. Does it make more sense to invest the money?

You might snag an interest rate of 4% or higher on a CD today. And that's a nice return given that you're not really risking the loss of any principal (assuming you don't have more than $250,000 in deposits and your bank is FDIC-insured). But you might score an even better return by investing your money in a brokerage account.

Now, going this route does mean taking on some risk. But whereas CDs today might be paying somewhere in the ballpark of 4% to 4.5%, the stock market has delivered an average annual 10% return (before inflation) over the past 50 years, as measured by the S&P 500 index's performance. When you compare a 10% return to what CDs are paying, investing can be tempting.

Renewing your CD when it comes due might seem like it makes the most sense. But make sure to answer these important questions before making that call. You may decide that it's best to move that money into a regular savings account so you can access it whenever you need to for emergency expenses. And you may decide to move it into another bank with better rates, or start investing so you can grow your money into an even larger sum over time.