Blog

Whether it’s saving for a child’s college fund or putting money away to purchase a vacation home, savings are a critical element of achieving your financial goals. But outside of savings accounts, what are some other ways you can manage your savings? Certificates, also commonly referred to as certificates of deposit or CDs, are a great way to store your savings to accomplish your savings goals.

What are Certificates?

Certificates are a type of savings account in which you deposit a specific amount of money for a certain amount of time, known as a term, specified by the financial institution. The timeframe in which your money will be held in the certificate varies and can generally be anywhere from a month to ten years. During this period, your money will earn dividends. The dividend is the amount of money you’ll earn in interest, which comes from the gains of the financial institution.

Certificates are a great way to store money away for a future goal. You won’t need to worry about setting aside money for that specific goal each week or month and can allow these funds to collect interest. You also have the flexibility to shop around for a competitive annual percentage yield, or APY. The APY is the amount of interest you’ll earn within a year, and this includes compound interest.

Common Features of Certificates

There are some common terms you should be aware of before opening a certificate. These terms include:

• Fixed Term: The fixed term is the amount of time your funds will be held in the certificate. The end period of the fixed term is known as maturity.
• Fixed Interest Rate: Certificates will often have a fixed dividend rate, which is the APY at which your money will grow over the fixed term. This rate will not change turn during the duration of the term.
• Early Withdrawal Penalty: Certificates unfortunately carry an early withdrawal penalty, which is exactly as it sounds. You will forfeit an amount of your funds if you need to access your money prior to the end of the Certificate's fixed term.

It's also important to note that funds in a certificate are insured for certificates obtained through a federally insured financial institution. All American Heritage certificates are insured up to $250,000 per depositor. You can learn more about this insurance and the National Credit Union Administration (NCUA) here.

How are Certificates Different from a Savings Account?

Certificates are a type of savings account, though there are a few distinct differences that are important to recognize. For one, certificates typically have a higher interest rate than a savings account. Certificates will allow you to lock in upon a certain interest rate, while normal savings accounts are typically subject to changing interest rates.

Flexibility to access your funds is another major area of difference when it comes to certificates and savings accounts. While both may carry some kind of penalty or withdrawal fee, you generally cannot access certificates before they have reached maturity. This is different from a typical savings account account or money market account market account, where you may need to access those funds for a major emergency or special occasion.

When to Consider Enrolling in a Certificate

A certificate is a perfect option if you wish to store away funds for a major purchase. A down payment on a home, your dream vehicle, or saving for college or graduate school would all be ideal scenarios for enrolling in a certificate. Given the maturity dates of certificates, it is crucial that your goal be tied to a specific time as you won’t be able to access the funds until they’ve reached maturity.

Monitoring interest rates is also a factor when it comes to researching when to enroll in a certificate. Keep an eye on the trends of certificate certificate interest rates rates to ensure you’ll get the best return on your money. You’re already on the right track by looking at certificates, as they generally have a higher interest rate than a traditional savings account or money market account.

Risks of Taking On a Certificate

The biggest risk when it comes to certificates is accessing your funds. It is critical that your certificate is for a set goal that is for a point in the future, as opposed to something that will be occurring soon. Be sure to have another savings account to be used in case of emergency. A high-yield high-yield savings account account is a more attractive option for something like an emergency fund, and you’ll still earn dividends on your money.

You’ll also need to be cautious when it comes to early withdrawal penalties regarding certificates. If you have simply no other option and must access the money, an early withdrawal penalty will take effect with the amount being defined by your specific financial institution. Prior to making this decision, consult with financial counselors or other experts within your financial institution to be sure you’ve reviewed every option.

Certificates with American Heritage Credit Union

It’s our pleasure to offer our members certificates with competitive rates and flexible terms to help in reaching financial goals. Our certificates come with a five-day flex period following enrollment, meaning if an interest rate increases in the five days following the opening of the certificate, you will receive the higher interest rate. This benefit ensures you will make the most of your funds in your certificate over its term.

Retirement consultants with our Investment & Investment & Retirement Center Center are also available to help you in making sound decisions when it comes to certificates. They will be able to inform you of the latest trends and the ideal times to enroll in certificates, both in terms of your own financial situation and the interest rates. 

Certificates are a great way to help you accomplish your savings goals, especially when they are a few years into the future. Whether it’s a down payment on your first home or saving for your family’s dream vacation, a certificate is a great option. To learn more about our current certificate offerings, click here.