So what are certificates? And why should you care? Put plainly, certificates are a simple, secure way to invest your money. There are specific requirements and options, but ultimately, they can help you grow your money faster than you could in a traditional savings account.
So let’s dive in and learn enough about certificates for you to start achieving your savings goals. More money ahead!
The Scoop: Certificates, sometimes referred to as Certificates of Deposit or CDs, are essentially timed deposits of money. It’s important to know that certificates are similar to savings accounts in that they are federally insured and, therefore, risk-free. In the U.S., they’re insured by the National Credit Union Association (NCUA) for credit unions and the the Federal Deposit Insurance Corporation (FDIC) for banks.*
The Purpose: Certificates help you grow your money faster. They are different from savings accounts in that certificates have a fixed-life term (frequently one, two or six months or one to five years), which comes with a fixed interest rate over the life of that term. It is common practice that certificates are held until “maturity” or until the term expires, at which time the money, and accrued interest, is withdrawn. So, in short, a certificate is a savings account that grows with interest and has to be withdrawn after a specific amount of time.
The How: How can certificates help grow your yield so quickly, you ask? In exchange for keeping money for a fixed amount of time, credit unions or banks offer higher interest accrual rates than they do for regular savings accounts or accounts that can be withdrawn from or closed on demand. Conclusion: If you have a large expense coming up (like a child’s tuition fee) or need to grow some money in a relatively short amount of time (say for a new home down payment), certificates may be the best solution for you!
The Back-Pocket Info: There are a few things to “keep in your back pocket” while considering certificate options:
- Larger principals (the initial certificate deposit amount) should typically have higher interest rates, but not always—just keep that in mind.
- Similarly, longer certificate life terms will typically garner higher interest rates—bigger the deal, bigger the return.
- Smaller institutions typically offer higher interest rates than larger ones, but stay cognizant that they may not have as many resources or services available.
So that’s the 101 on certificates. Leverage certificates to Own your savings and financial goals, and as always, we welcome you to come talk to our financial advisors about which variety of certificate would work best for you. We have a number of options with a wide range of deposit minimums and life terms. Stay savvy, savers!