August 20, 2018

Certificates: How to Keep Your Money Spinning

A certificate is much like the familiar certificate of deposit (CD) offered by banks. It acts like a traditional savings account in that you deposit money to collect dividends over time. It differs from a traditional savings account, though, because you cannot withdraw or deposit money at will.

Instead, you agree to place your money on deposit for a preset period of time, called the “term length,” during which you may not make withdrawals without a penalty. Because you trust your money with the credit union for a longer period of time, longer term CDs are likely to have much better rates than a savings account.

You can deposit your money for as few as several months or as long as several years, but the longer you keep it on deposit, the better your rate will be (in most instances). For example, the average rate on a three-year deposit is, at the moment, 0.95%. Also, this rate is usually locked in, meaning it is not subject to change based upon how well the economy is doing at any given moment. In general, certificates offer a much higher return than savings deposits, if you’re willing to wait the time it takes to get your money back.

growing money

An Interior FCU Certificate will earn you a higher return on your savings, and will allow you to set money aside for a specific period of time.

What are the risks involved?

First, if you decide to withdraw your money earlier than the term you’ve chosen, a penalty typically applies. On average, these will cost you between three and six months of earned dividends. Depending on when you decide to withdraw, this can cost you more than you’ve made in dividends if you deposit in a certificate and then immediately withdraw it.

There’s also the risk of inflation. Should you choose to keep the money in the account for years at a time, you could actually end up losing money when taking inflation into account. Unfortunately, the only way to avoid that is to withdraw your money and take that penalty. Of course, inflation applies to all savings strategies, even the “tin can buried in the yard” approach. Other than inflation and penalties, your money is safe.

What insurance do I have against loss?

At for-profit banks, all certificates of deposits are backed by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures them for up to $250,000. At a credit union, the National Credit Union Administration (NCUA) or a private insurance corporation (sometimes both) will insure your certificate for the same amount. The insurance works the same way, for the same amount, regardless of who provides it. This insurance for your money happens automatically and requires no action on your part.

If you’re unsure, look for stickers near the teller windows with the letters FDIC or NCUA. If you see these letters, your deposit is secured. If you don’t, be sure to ask the representative assisting you with your account about insurance for your deposit. They’ll be able to tell you the name of the institution that provides it. The FDIC and the NCUA will automatically back you and keep you covered through the worst of economic disasters.

Is a certificate right for me?

There are many good reasons why a certificate would be the right choice. Certificates usually have minimum deposit amounts, so be sure you’ve got enough savings to spare that you can lock away a few hundred dollars, at least. If you’ve got trouble with impulse spending, certificates can be a great choice to lock your savings away from yourself. They also make an excellent vehicle for an emergency fund. Using a technique called “laddering,” you can take advantage of the higher rates offered by longer-term certificates while preserving the flexibility of shorter-term ones. If you’ve got the discipline to keep your money locked in a certificate for its term, you can seriously muscle up your savings.
 
With our certificate rates, you will earn a high return on your savings for the future. Reach out to a Contact Center Representative today to get details on what type of certificate account is right for you! 
 

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