Growing Your Savings with Certificates

The breakdown of Certificates of Deposits.

Grandma and Granddaughter
Security of Savings

Let’s talk CDs, no not the latest Dave Matthew’s Band album – we’re talking Certificates of Deposits. Certificates are great if you want to watch your savings grow, without having to actively watch the markets and manage your money. At their most basic level, Certificates are like Savings Accounts that you agree to leave your money in for a certain amount of time, called the term of the Certificate. When you open a Certificate, you are, in effect, loaning your money to the Credit Union for a specific amount of time and in return the Credit Union gives you a higher rate of interest on your Certificate. Sounds easy, right?

Pros of Certificates

There are many benefits to putting your money into a Certificate of Deposit. For starters, Certificates provide security you won’t be able to find in the unpredictable stock market and allow you to grow your investment portfolio. You determine the length of time you want your money in a CD, from 21 days to 10 years or more. Even better, if you decide to open a Certificate with the Credit Union, you may earn higher interest when you qualify for Rewards Rates. Plus, the National Credit Union Administration (NCUA) will federally insure your Certificate of Deposit up to $25,000 when you open a CD at the Credit Union.

Do Your Research

Make sure you do your homework when looking into opening a Certificate of Deposit. There are several different types of Certificates that may fit your financial needs; from a Traditional CD to a Liquid CD, you will want to know what works best for you. Also, when shopping around for a Certificate, make a note to look at the maturity date of the CD. The maturity date is when your Certificate term is over, the financial institution you opened your Certificate stops paying interest on your CD, and you can access or reinvest the money you put into it (referred to as the principle) as you see fit. Upon maturity of your CD, you can either roll the principle over into a new CD or you can simply just take the cash. A word of caution: if for some reason you need access to the funds on your Certificate before the maturity date, you may be subject to fees or a loss of interest.

Certificate Laddering 

Hypothetically speaking, let’s say you have $10,000 to invest in Certificates of Deposits, but you don’t want to tie all that money up in one CD for a long period of time. Well, you may want to consider the option of Certificate laddering. With Certificate laddering, you are able to split your funds up equally into many Certificates, each with a different maturity date. For example, say you divide your $10,000 up into 5 different Certificates with equal principle amounts of $2,000 and maturity dates of 12,24,36,48 and 60 months. By doing this, one of your Certificates matures every 12 months giving you the opportunity to take the cash or roll the CD over into a new one. Certificate laddering is a great way to earn the high interest that comes with fixed-term investments, while still maintaining liquidity and flexibility in your assets.

Are CDs Right for You?

Certificates of Deposits are a good way to save money for the future, but, again, before making any investment, you want to make sure that it fits your needs. Some questions might be:

  • Will you need immediate access to the funds in the near future?
  • If so, do you have enough money in liquid savings in case you are not able to get to your money in the CD?
  • Are you comfortable with putting money away for a specific length of time?

Figuring this information out prior to opening a Certificate will benefit you greatly. If you have any questions about Certificates of Deposits or would just like more information on them you can always speak with one of the Credit Union’s Financial Advisors.