A Certificate of Deposit Lasts as Long as You Choose at the Start

When you open a certificate of deposit (CD), you pick the length upfront—typically anywhere from three months to five years, though some banks offer terms as short as one month or as long as ten years. That term is fixed. You cannot change it once the CD opens. The bank holds your money for exactly that period, and in return pays you a set interest rate that does not change, no matter what happens to market rates during those months or years.

The most common terms are three months, six months, one year, two years, three years, and five years. Shorter terms usually pay lower interest rates. Longer terms usually pay higher rates, because the bank gets to use your money for a longer period. The exact rates vary by bank and change daily, so there is no single "right" length—it depends on when you need the money and what rate the bank is offering for each term.

Key Takeaways

  • You choose your CD's length when you open it, and that term cannot be changed—the bank holds your money for the exact period you selected.
  • Common terms range from three months to five years, with shorter terms paying lower interest and longer terms paying higher interest.
  • When your CD reaches its maturity date, the bank returns your principal plus all earned interest, usually within one to three business days.
  • If you withdraw money before the maturity date, you will owe an early withdrawal penalty, which typically costs three to six months of interest.
  • After maturity, your CD automatically renews for another term at the bank's current rate unless you tell the bank to do something else.

What Happens on Your CD's Maturity Date

On the exact date your term ends, your CD matures. The bank returns your original deposit plus all the interest you earned, usually within one to three business days. You then have choices: you can move the money to a savings account, open a new CD at the same bank or a different one, invest it elsewhere, or withdraw it entirely.

Most banks have a grace period—usually seven to ten days after maturity—during which you can tell the bank what to do with the money. If you do not give instructions during that window, the bank automatically renews your CD for another term of the same length at whatever interest rate it is currently offering. That new rate might be higher or lower than what you earned on the first term. Many people miss this window and end up locked into a renewal they did not intend, so mark your maturity date on a calendar and contact your bank a week or two before it arrives.

Early Withdrawal Penalties and Why They Matter

If you need your money before the maturity date, you can withdraw it, but the bank will charge an early withdrawal penalty. That penalty is typically three to six months of interest, though some banks charge more and some charge less. On a small CD or a short-term CD, the penalty might be only a few dollars. On a large CD or a long-term one, it could be hundreds of dollars.

The penalty comes out of your interest earnings first. If your interest earnings are smaller than the penalty, the bank takes the difference from your principal—meaning you get back less money than you deposited. Before you open a CD, ask the bank exactly what the early withdrawal penalty is. It is usually stated as a number of months of interest, so you can do the math yourself. If you think there is any chance you will need the money early, a shorter-term CD or a high-yield savings account might be a better choice, because savings accounts let you withdraw money without penalty.

How Interest Rates Affect Your Choice of Term Length

Banks pay higher interest rates for longer terms because they want to lock in your money for a longer period. Right now, a one-year CD might pay 4.5 percent annually, while a five-year CD might pay 5.0 percent. That extra 0.5 percent does not sound like much, but on a $10,000 CD over five years, it adds up to several hundred dollars more in interest.

However, if interest rates are falling, locking in a longer term makes sense—you keep that higher rate even as rates drop. If interest rates are rising, a shorter term might be smarter, because when your CD matures, you can open a new one at the higher rate. The tradeoff is that you have less certainty about future earnings. There is no way to predict which direction rates will move, so many people split the difference by opening CDs of different lengths—some short-term, some long-term—so that some of their money matures each year and can be reinvested at whatever the current rate is.

Comparing CD Terms Across Different Banks

Interest rates for the same term length vary significantly from bank to bank. A one-year CD at one bank might pay 4.25 percent while another bank pays 4.75 percent for the same term. Over a year, that 0.5 percent difference means real money. Before you open a CD, check rates at several banks—both traditional banks and online banks, which often pay higher rates because they have lower overhead costs.

When you compare, make sure you are looking at the same term length at each bank, because rates change as the term gets longer. Also check whether the bank charges a monthly maintenance fee, because that can eat into your interest earnings. Some banks also offer special promotional rates for new customers or for larger deposits, so it is worth asking. Once you have found the best rate for the term you want, you can open the CD online or in person, depending on the bank.

What to Do When Your CD Is About to Mature

Set a reminder on your phone or calendar for one week before your maturity date. Call or log into your bank account and find out what the current CD rates are. If the new rate is competitive with what other banks are offering, you might let it renew. If rates have dropped and other banks are paying more, you can withdraw the money and open a CD elsewhere. If rates have risen, you will definitely want to open a new CD at the higher rate.

Some banks make it straightforward to shop around by showing you their current rates online. Others require you to call or visit a branch. If you are unhappy with the renewal rate, you have the full grace period—usually seven to ten days—to move your money without penalty. After that window closes, the renewal is locked in and you would owe an early withdrawal penalty if you wanted to move the money. Do not let the grace period slip by without making a decision.

Special CD Types with Different Rules

Most CDs follow the standard rules: fixed term, fixed rate, penalty for early withdrawal. But some banks offer variations. A no-penalty CD lets you withdraw your money early without a penalty, though the interest rate is usually lower than a standard CD. A bump-up CD lets you request one rate increase during the term if rates rise. A step-up CD automatically increases your rate at set intervals—for example, the rate goes up every year for a five-year CD.

These special types can be useful if you are uncertain about your needs or if you think rates might rise. However, they come with tradeoffs: lower starting rates, limits on how much the rate can increase, or both. Read the fine print carefully so you understand exactly what you are getting. The bank's website or a phone call to customer service can explain the specific rules for any special CD type they offer.

Frequently Asked Questions

Can I withdraw money from my CD before it matures?

Yes, you can withdraw money at any time, but you will owe an early withdrawal penalty. The penalty is typically three to six months of interest, though it varies by bank and by CD term. If your interest earnings are smaller than the penalty, the bank deducts the difference from your principal, so you get back less than you deposited.

What happens if I do not tell my bank what to do when my CD matures?

Your CD automatically renews for another term of the same length at the bank's current interest rate. Most banks give you a seven to ten day grace period after maturity to change your mind. If you miss that window, you are locked into the renewal and would owe an early withdrawal penalty to move the money.

Do all banks offer the same CD terms and rates?

No. Banks offer different term lengths and pay different interest rates for the same term. Online banks often pay higher rates than traditional banks. Before you open a CD, compare rates at several banks for the term length you want, and check whether there are any monthly fees.

Is a longer CD term always better because the interest rate is higher?

Not necessarily. A longer term locks in a higher rate, which is good if you think rates will fall. But if rates are rising or you might need the money sooner, a shorter term gives you more flexibility. Many people open CDs of different lengths so that some money matures each year.

What is the shortest CD term I can get?

Most banks offer CD terms as short as three months, though some offer one-month CDs. The shortest terms pay the lowest interest rates. If you need access to your money frequently, a high-yield savings account might work better than any CD, because you can withdraw without penalty.