Certificates of deposit (CDs) are a way for savers to put aside some money for the short term and earn a modest return on it in the meantime. CDs are very low risk, offering both a guaranteed return and federal insurance for the funds. As a result, they are popular among seniors and are often part of inheritance settlements.

Inheriting a CD is a fairly straightforward process, at least in comparison to some other types of assets. Who inherits a CD and how quickly they have access to it depends on a number of the CD's factors and features. In this guide, we’ll take you through the most likely scenarios.

Inheriting a CD

What happens to a CD when the owner dies depends on a wide range of factors. In general, the most important of these are whether the CD was held as a joint account and whether the account owner named a payable on death (POD) beneficiary.

In most cases, the bank or credit union that holds the CD will take no action unless instructed. This means that CDs can reach maturity while the inheritance process continues and may even be rolled over into a new CD. 

However, there are a number of state laws that affect the way that CDs are handled in inheritance proceedings, and each bank has its own rules about what happens to a CD when its owner dies. As a result, giving general advice in this area is difficult. However, let’s look at the four most common scenarios.

If the CD Was a Joint Account

CDs can be held as joint accounts, but the rules on joint bank accounts vary by state. In some states, if one owner of a joint account passes away, the other owner receives full ownership of the account. If you inherit a CD in this way, the CD will typically continue to run in the same way it was before. When it reaches maturity, you can close it and withdraw its funds.

In some states, joint accounts work differently. In some cases, if the joint owner of a bank account dies, the funds will be split between the surviving owner and the estate of the deceased. In this case, the bank will normally close the CD—perhaps waiving the early withdrawal penalty, perhaps not—and distribute the funds as instructed.

If There Is a Payable on Death Beneficiary

Some CD accounts allow the owner to name a payable-on-death beneficiary. This is a person who will automatically inherit the funds in a CD if the account owner dies. If you inherit a CD in this way, you should contact the bank or credit union that holds the CD and provide them with a copy of the death certificate of the person who has passed away and proof of your identity. The provider may ask you to visit a branch to check these documents.

What happens next depends on the bank's policies. Some banks will terminate a CD when the account owner dies and allow you immediate access to these funds. Other institutions will make you wait until the CD reaches maturity.

If You Inherit Via Probate

If the owner of a CD passes away and the CD was neither held as a joint account nor had a POD beneficiary, the CD will be treated just like any other asset. In most cases, that means it will be part of the probate process.

The probate court provides the final ruling on the division and distribution of assets to beneficiaries. Once the probate process begins, a variety of groups can claim the assets of the deceased, including relatives and creditors. The will of the deceased party will determine how the assets should be distributed. If the deceased passed with no will, then the court will determine the appropriate distribution after hearing from the competing parties.

When the probate court reaches a decision, the judge will appoint an executor to handle the estate. The executor provides the financial institution holding the CD with letters of administration from the probate court and closes the account. Again, it depends on the policies of the provider of the CD as to when they will grant the inheritor access.

If There Are No Heirs

Sometimes, the owner of a CD will pass away, but they will have no heirs. In this case, state laws require financial institutions to close the CD after a specific amount of time. This time period varies, but in most states, it’s five years.

If an account owner neither accesses an account nor contacts the financial institution holding it for five consecutive years, the funds are classified as dormant. Every state has an abandoned assets fund where funds from dormant accounts and other assets are stored indefinitely until a claimant emerges to reclaim the money.

If you think that you should have inherited money from a CD, but that the bank holding it didn’t know you were the heir, you should first contact the bank. Then, you may have to contact your state to get the money back.

The Bottom Line

You can inherit a CD in several different ways. If you are the joint owner of a CD and the other owner passes away, you’ll automatically get full access to it. If you are named as the payable-on-death beneficiary of a CD, you’ll need to contact the bank or credit union that holds it in order to claim the money.

In other cases, CDs are part of probate settlements. In some cases, the provider of a CD will terminate it when the account owner dies; sometimes, you’ll have to wait for the CD to mature before you can access its funds.