- You can buy CDs with various terms at any time, but banks normally sell at least one promotional rate CD per month on which you can earn an above-average interest rate. When your CD matures, it enters a grace period that can last for up to 10 days. If you take no action, then a new CD term begins when the grace period ends. During the grace period, the bank normally pays the standard rate of interest on the CD, as opposed to the promotional rate you earned before it reached maturity.
- Legally, banks are required to credit interest to your CD at least once a year. However, if you have a CD with a term of less than 12 months, then your bank only has to credit interest to your CD when it reaches maturity. Consequently, your CD increases in value when it reaches maturity, because the bank credits the amount of your accrued interest to the account. If you have a multi-year CD, then at maturity your bank will credit the amount of any interest not previously paid; this will cause the account value to increase.
- When you open a CD, you must sign a time deposit contract that specifies the terms of your CD agreement. You can choose to have your interest capitalized, which means it stays within the account; or distributed, in which case your bank sends you an interest check at least once a year. If you have your interest distributed, then you account does not grow in value when it matures. Most CDs automatically renew after the grace period ends; but if you have a non-renewable CD, then your bank liquidates it when it matures and disburses the account proceeds. Therefore, your account does not grow if you have a non-renewable CD with distributed interest.
- Banks sell CDs to investors through brokerage firms. These CDs are similar to regular bank CDs, except fact that brokerage CDs are non-renewable. At maturity you receive a return of premium and your interest, but you have no grace period, and the CD cannot roll over. Some brokerage CDs are callable, which means the bank that issued the CD can pay the it off before it reaches maturity. Therefore, on a brokerage CD you are not always guaranteed to earn interest for the entire CD term.