Do you have a CD in the making? 3 things to do with

Image source: Getty Images

If you have a certificate of deposit expiring right now, it’s important to think carefully about your next move.

Opening a certificate of deposit, or CD, is normally a good way to earn extra interest on your money without the risk of investing in the stock market. CD deposits are FDIC insured for up to $250,000 per depositor. So as long as you don’t go over that, the principal amount you put in your CD is guaranteed not to lose value.

But what if you have a CD that is about to arrive? Normally rolling it into a new CD is a good bet. This way you can continue to earn higher interest on your money than you would with a standard savings account. But these days, CDs only pay minimal interest, so it makes less sense to tie up your funds in a new one. In light of that, here are some alternatives to consider.

1. Move your money to a savings account

If you stored your emergency fund on a CD, you’ll need to move that money somewhere where it’s still FDIC protected. At present, a savings account is a good bet. Believe it or not, rates are so horribly low now that savings account rates are on par with a year-old or older CD. In fact, if you open a short-term CD, like a 6-month CD, you might get a lower interest rate than with a savings account.

Therefore, it might make sense to roll a maturing CD into a savings account. This way you are not locking your money away for a set period of time. With a CD, you have to keep your money where it is for the duration of the CD. If you withdraw money before your CD matures, you will have to pay a penalty of several months of interest. The exact penalties vary by bank. But with a savings account, you can withdraw your money at any time and there is no penalty for doing so.

2. Put your money in an investment account

If the money on your CD was extra money you didn’t want to save and wasn’t earmarked for emergencies, it might be time to consider investing in stocks. Opening a brokerage account will give you the possibility of obtaining a higher return on this sum. You will need to have a solid emergency fund in place as investing in the stock market carries more risk.

3. Move your money into a retirement plan

If you don’t need the money from your maturing CD right now, consider putting it in an IRA. You’ll get tax relief on the money you contribute to a traditional IRA. A Roth IRA won’t give you instant tax relief, but you will benefit from more flexible withdrawal rules (including tax-free withdrawals) during retirement. Of course, if you’re going to fund an IRA, you should expect to leave that money locked away until your later years, so make sure you’re ready to commit before you go that route. Taking an early withdrawal from the IRA could result in serious financial penalties.

Be smart with your money

Storing excess money on a CD might be a smart move in general, but it’s not a good plan right now. Even longer-term CDs pay so little that they’re comparable to savings accounts. So rather than locking your money away on another CD, find a better place for it until interest rates improve.

These savings accounts are FDIC insured and can earn you 8 times your bank

Many people miss out on guaranteed returns because their money languishes in a big bank savings account earning virtually no interest. Ascent’s picks of the best online savings accounts can earn you more than 8 times the national savings account average rate.

Jack L. Goldstein