A certificate, sometimes referred to as a certificate of deposit, or a CD, at banks, is a savings product offered by credit unions that typically earns more dividends (commonly referred to as interest) than a traditional savings account.
Certificates are great tools for achieving both short- and long-term savings goals, but many people are unfamiliar with them. In this article, we break down the basics of certificates and outline how you can benefit from opening one.
What Is a Certificate?
As mentioned above, a certificate allows you to earn more in dividends than a traditional savings account. In order to fully benefit from this greater dividend rate, your money must be left in the account for a specified period of time (called the term).
When you open a certificate, you choose the term that works for you, with options that typically range from three to 60 months. At the end of the term, your certificate matures.
You have several options for what to do with your savings once your certificate matures. You can withdraw the funds, renew the certificate for the same term, or put the funds in a new certificate with a different term.
Are Certificates Safe?
Certificates issued by PSECU are insured by the National Credit Union Administration (NCUA), up to $250,0001.
How Much Money Do I Need to Open a Certificate?
Most certificates have a required minimum balance. At PSECU, you can open a certificate with as little as $5002.
How Is a CD Different Than a Traditional Savings Account?
The main difference between these two types of accounts is that you can deposit and withdraw money freely from a traditional savings account. While you may have to retain a minimum balance at some financial institutions, you’re not required to keep your money in the account for any fixed amount of time.
With a certificate, you make a commitment to the term you choose, and withdrawing funds early can result in reduced dividend earnings and/or a penalty.
Why Should I Get a Certificate?
There are many reasons a certificate could be a good fit for you.
First and foremost is the ability to save at an increased rate. By placing your money in a certificate, your investment generally offers a better return compared to a standard savings account.
Additionally, certificates are flexible in that they allow you to save for any purpose. The money can be used for any savings goal or expense you’re planning for.
An added bonus for some is that a certificate can instill fiscal discipline in your life. If you find yourself constantly borrowing from your savings account for unnecessary or unplanned purchases, a certificate may help you get through a short- or long-term spending freeze by knowing that you’ll incur a penalty if you withdraw money early.
How Long Do I Have to Keep My Money in a Certificate?
Different financial institutions offer certificates with different terms. At PSECU, we offer certificates with terms that range from three to 60 months. You can choose the length that fits your needs. Generally, the longer the term, the higher the dividend rate. Use our Certificate Earnings Calculator to see how much you can earn based on your opening deposit and the term you choose!
When choosing a term, consider what’s coming up in your life that you’ll need the money for and choose accordingly. For example, if you know you’re hoping to use the money to redo your kitchen in three years, don’t choose a five-year term or you’ll face a penalty when you withdraw the funds.
Open a Certificate at PSECU
Ready to start watching your money achieve more in a certificate? Learn more about our certificate options.
1 All PSECU deposit shares, including checking, Regular, additional savings, money market and certificates, are federally insured by the National Credit Union Administration (NCUA) up to $250,000, the maximum allowed by law. In addition to the $250,000 of insurance provided on an individual account or combination of individual accounts, you are also insured up to $250,000 for any combination of accounts you may hold jointly with other individuals.
View Truth in Savings Account Disclosures.
2 If your withdrawal plus penalty takes the certificate below the required minimum $500 balance, your certificate will be closed and the penalty will be calculated on the entire balance.