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Putting money into a certificate of deposit (CD) offers a lot of benefits. Not only do CD rates tend to be higher than savings account rates, but with a CD, the rate you lock in is guaranteed for a period of time.
If you opened a CD somewhat recently, you may have one coming due this month. It’s important to make a plan for that money and let your bank know about it before your CD renews automatically, which it may be set to do. Here are some options to consider.
1. Cash out your CD if you’ll need the money for a near-term expense
Maybe you expect to have to travel to a friend’s wedding this summer. Or maybe your car has been losing steam and you’re certain you’ll have to replace it later this year.
If you think you’ll need the money in your CD within the year, then your best bet may be to cash it out once it matures. You can roll the funds into a regular savings account and use them accordingly.
2. Replenish your emergency fund
Maybe you had to dip into your emergency fund recently to pay for a home repair or to cover an ER bill when you fell and needed stitches. At a minimum, you really want your emergency fund to have enough cash to cover three months of essential expenses. If you’re below that threshold, you may want to roll your CD into savings once it comes due.
Unfortunately, most Americans don’t have enough money in savings to cover three months’ worth of essential bills. SecureSave reported last year that 63% of U.S. adults couldn’t cover a $500 emergency expense on the spot. But if you have enough money at your disposal to build an emergency fund that can pay for three months of bills, then it pays to do so, even if it means forgoing the higher interest rate a CD might offer you.
3. Renew your CD or open a new one if you don’t need the money right away
Maybe you’re all set with emergency savings and aren’t anticipating any near-term expenses that are out of the ordinary. In that case, you may want to either renew your CD at your current bank or, if there’s a better rate elsewhere, take the money and use it to open a CD at a different bank.
This month in particular happens to be a good time to open or renew a CD. The Federal Reserve is expected to start cutting interest rates in 2024. Once it does, banks are apt to start paying less interest across a range of products, CDs included. So now’s a good time to lock in a CD, while rates are strong.
Take action either way
No matter what you decide to do with your CD, make sure to log into your bank account before it matures and make a choice. Some banks will renew your CD automatically for the same term if you don’t make an election ahead of your CD’s maturity date. That could leave you in a situation that doesn’t work for you.
For example, if you have a 12-month CD coming due this month and you don’t tell your bank what you want to do with that money, your cash might land in a new 12-month CD. But what if you don’t want to tie your money up for a full 12 months because you might buy a home later this year? That’s why it’s so important to make a decision one way or another — and make certain your bank knows about it.
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