Certificates of Deposit, or CDs, are secure investment vehicles that offer a set interest rate return in exchange for investing money for a specified period of time, such as one year. These financial instruments are insured by the Federal Deposit Insurance Corporation, FDIC, and are generally offered by commercial banks, credit unions and other financial institutions. You can replace a certificate of deposit with an alternative investment, a new CD or use the money toward a personal expense once the CD term is completed without penalty. Early withdrawal from your CD typically results in the loss of some of your earned interest as a penalty.
Step 1
Review your certificate of deposit terms. Determine when your CD period will end and note any contractual penalties for early withdrawals. If you cannot locate your policy documents, contact the bank or financial institution who issued the CD for details. Discuss the reasons for any early withdrawal as some banks will waive penalties if you are moving funds to a retirement account, if the CD holder has passed away or if you meet specific exception criteria.
Step 2
Determine when to replace your CD. Analyze your need to replace your CD based on how much money you will lose if you withdraw your funds early. If the return on an alternative investment will yield more than the loss by early withdrawal from your CD, replacing your certificate of deposit may be a prudent financial decision. For uncertain returns on alternative investments, consider waiting until the CD term ends before moving your funds.
Step 3
Evaluate your CD alternatives. The CD provides a stable investment option due to the insured savings and guaranteed rate of return. Discuss your investment options with a financial adviser before placing your funds in riskier investments that could lead to an unbalanced investment portfolio.
Step 4
Cancel your CD and ensure any automatic rollover into a new CD is canceled. Many CDs have an automatic renewal policy that will restart your certificate of deposit period at the same rate as the expired CD. Notify your bank that you do not want your CD to renew at least a month before the CD expires. Some financial institution offer a grace period of about a week, before withdrawal penalties will be assessed after a CD rollover.
Step 5
Place CD funds into a new investment. You can opt for a new CD that offers a longer term or higher interest rate return, stocks, retirement investments such as an IRA, mutual funds or a personal investment into a business. After replacing your CD, ensure funds from your old certificate of deposit were correctly transferred into your new investment vehicle.
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