Maturity

Maturity is the date a financial contract ends. For a deposit it is when principal and interest are paid, for a bond when the loan is repaid, and for a loan when the balance must be cleared.

Longer maturities usually carry higher rates. That extra is payment for tying money up and for the uncertainty of what may happen in the meantime. Plotting that relationship produces the yield curve.

Breaking a contract early costs you. Deposits swap the agreed rate for a much lower early-termination rate, and bonds must be sold in the market, where the price may be below what you paid.

So maturity should match when you will need the money. Locking cash you need in two years into a five-year term guarantees an early exit, while running long-term money on short terms forfeits interest you could have earned. Staggering maturities helps as well. Splitting money across one, two and three years means something matures every year, so you never have to break everything at once and you can respond to rate changes.