We’ve seen record inflation for the year and to try and temper rising costs, the Fed raised interest rates. These rate increases made time deposit accounts a more attractive investment option. These accounts are time-based, meaning the money is locked at a fixed interest rate for a defined period of time. When the account matures, you have a few different options for your funds: renew or liquidate.
Renew the funds
First, you can renew the funds. If you select another time deposit account, you’ll want to check your budget and make sure you don’t need the funds again during the term of the time deposit. Your interest rate may change, but this can still be a great savings tool depending on your needs. If you want to renew the funds, you can add more cash to the account at time of renewal if you like.
Sometimes, deposit accounts are set up to auto-renew. Check the details of your specific account to see if your account is set up for auto-renewal and double check the time limit and the interest rate are still things you are comfortable with. If your account auto-renews, you typically have 10 days after maturity to request any changes to the new terms.
You can also discuss using a different investment vehicle for your funds if the term limits or interest rates are not what you are looking for. Your banker can walk you through different options to renew your funds if that’s the route you choose.
Liquidate the funds
A second option once your time deposit matures, is to liquidate the funds meaning you can add them to your checking account or liquid savings account. This can be a great option if you were saving the money for a large purchase that you are ready to make or if you need the funds to pay for other expenses that you have right now. There are typically multiple ways you can receive your funds, including by check or direct deposit. You usually have a short time frame to receive your funds and your bank will communicate this with you.
With a time deposit account, you earn interest on the money you’ve deposited. The interest that you earn may be taxable. If you decide to put your time deposit funds back into another savings vehicle, your tax implications may be different than if you liquidate the account. Talk with your tax advisor about different options, and which one makes the most sense for your individual circumstances.
Communication is key
When your time deposit account matures, the best thing you can do is have an open discussion with your banker. Review your budget and goals so you can make the comfortable decision for your individual circumstances. The more you share with your banker, the more personalized advice they can provide as you decide if you want to renew or cash out.
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Income will be reported to the first signer on the account, in the year received, as required by applicable law. Please consult your tax advisor if you have any questions as UMB Bank, n.a. does not provide tax advice.