When your CD matures, you don't have to leave the money in the same bank or any bank. Look around for a better deal on CDs, or keep your stash more accessible for an emergency. If you owe the butcher and baker, now may be the time to pay them off. It could even be the time to choose other choices from the investment menu or spend the payout on fun. With the money in hand, you have choices.
The easiest alternative is to roll your cash over into the same-term CD at the same bank for whatever interest rate applies. If you don't plan to use the money soon, you can often get a higher rate by choosing a longer-term CD. To find the best deals, shop around at other banks, both local and online. Look for the highest total interest, or Annual Percentage Yield, on websites such as Bankrate.com.
Use the cash to pay down what your owe. If you have high-interest debt on a credit card, it doesn't make much sense to roll over a CD for stingy interest payments. Jeffry R. Kosnett, senior editor for Kiplinger, recommends using the cash to pay off credit cards. You'll reduce monthly bills and save money on interest.
If your emergency cushion is thin, use your CD payout to plump it up. Financial gurus such as Dave Ramsey recommend a minimum emergency fund of $1,000. If you've paid off credit cards, Ramsey recommends keeping enough to live on for three to six months in an emergency fund. Stash your payout in a money-market or savings account to make it easy to get when trouble comes. Online banks often have the best interest rates, so compare accounts online.
Kosnett suggests putting your CD payout on your mortgage to save on interest if you don't have higher-interest debts. Online mortgage calculators help you figure your interest savings from a lump sum or extra monthly payments. However, Dave Ramsey recommends fully funding an emergency account before prepaying your mortgage.
Kosnett also recommends Treasury Inflation-Protected Securities, or TIPS, as an option for your CD money. These are risk-free U.S. government issues that pay fixed interest plus an extra boost to make up for inflation. You can buy them yourself from Treasury Direct online or through a broker.Stock or bond index mutual funds are another option for small investors, as "The Wall Street Journal" suggests. You can wade into index funds with as little as $100 or $1,000, and they normally have low fees.
If you have your basic financial bases covered and want to have fun, spend the money.Use the payout from a CD for the fancy gadget or special sports equipment you crave. Other possibilities include a dream vacation or home improvements. As long as you are current on bills and have emergency funds, Kosnett says it's far better to pay cash for your dream than to charge it.
- Bankrate.com: National High Yield Rates for CDs
- Bankrate.com: Mortgage Calculator
- Bankrate.com: Compare Money Market and Savings Accounts
- Treasury Direct: Welcome to Treasury Direct
- U.S. Securities and Exchange Commission: Invest Wisely -- An Introduction to Mutual Funds
- Treasury Direct: Treasury Inflation-Protected Securities (TIPS)
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