CD account maturing soon? Avoid moving your money here.
A certificate of deposit (CD) account was one of the safer and smarter ways to grow your money in recent years. While inflation surged and interest rates caused the cost of borrowing to rise, rates on CDs increased exponentially. This allowed savvy savers to earn exponentially more on their money with a CD than they would have a few years earlier as rates on many accounts grew from under 1% to 5% or higher. Some savers were even eligible to earn 6% and 7% with select CD accounts.
But the rate climate in which many opened CDs in 2022 through 2024 is different now. Inflation has declined substantially (even if it's ticked up again in recent months) and multiple interest rate cuts have since been issued. In this new climate, those with CD accounts set to mature should start doing their research on where to move their expiring funds. But they should also be aware of the places to avoid. Below, we'll break down three account types to avoid moving your CD funds to right now.
See how much you could be earning with a top long-term CD here today.
Where to avoid moving your maturing CD account funds
Have a CD account approaching its maturity date? Most savers would benefit by staying clear of these three account types:
Traditional savings accounts
CD account rates, while on the decline, are still readily available in the 4% to 4.50% range now for a variety of terms. But the average return on a traditional savings account is just 0.46% currently, according to the FDIC, making CDs many times more advantageous. That traditional savings account equates to just 46 cents earned for every $100 deposited.
And that rate could fall even further if additional rate cuts are issued this year as traditional savings accounts have variable rates subject to change, unlike CDs which have fixed rates that will remain the same for the full CD term. So, if you have a CD set to mature, consider a different one instead – and skip the traditional savings account route.
Get started with a new, high-rate CD here.
Short-term CDs
Short-term CDs tend to have slightly higher interest rates than long-term ones right now (think a quarter of a percentage point, approximately). But that higher rate won't negate the fact that the account will mature in under a year and, with some account terms, just a few months. Moving your maturing CD funds here, then, will only offer temporary assistance.
Instead, many savers may be better served by transferring their money into a long-term CD. This will extend today's high rate protection for 18 months or longer and, upon maturity, will result in a much higher return on the money than if it was constantly rotated in and out of short-term CD alternatives.
Accounts with banks with physical branches
While not a uniform suggestion, in general, savers with CD accounts set to mature should look to online banks instead of those with physical branch locations. Here's why: Online banks don't have the usual maintenance costs that those with brick-and-mortar branches do. Because of this, they tend to transfer those cost savings to savers in the form of higher interest rates.
This is not to say that you may not be able to find a competitive rate with your local branch. But if you have a CD maturing at a 5% rate, you're more likely to find a rate close to that by exploring an online bank instead, especially if you do it this January.
The bottom line
If you have a CD account set to mature and want to continue to earn a competitive rate, it's equally important to know where to move your funds as it is to know where to avoid putting them. By understanding the drawbacks of the above account types now – and knowing the viable alternatives – you can better reposition your maturing funds for additional, high-interest-earning opportunities in the months and, potentially, years ahead.
