Should I Use a Certificate for a Savings Goal?

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If you need a way to save money toward a big goal and you don’t need to access that money for a while, a certificate may be the high-yield, secure option for you. You can save to buy a new home, start a wedding fund or build an emergency fund while earning a higher dividend rate than you would with a traditional savings account. See how certificates could benefit you.

What Is a Certificate?

Certificates are savings accounts that earn fixed dividend rates. You open a certificate for a set amount of time, referred to as a “term,” and you receive a dividend based on the interest rate. You can't access the money until the term ends, or you will be required to pay an early withdrawal penalty. All Members 1st Federal Credit Union shares, including certificates, are federally insured by the National Credit Union Administration (NCUA).

Before opening a certificate, you should set and assess your financial goals. Consider:

• Your savings timeframe. Credit Unions offer varying terms. Generally, the longer the term, the higher the dividend rate and the more money you earn.
• The growth you want to achieve. The compound dividend rate varies depending on how much you save as well as your term. You can optimize your money by saving more for a more extended period.

Our certificates run from three months to five years. All require a minimum balance of $500 and can be opened online.

How Do Certificates Work?

Let’s look at a few examples of how you could save with a certificate. Let’s say you’re saving money for a dream vacation around the world but have no plans to travel for several years. You put $50,000 into our 48-month certificate with a 1.15% annual percentage yield. You may earn $2,339.98.

Or, let’s say you want to save for a home renovation to boost your home’s value. Construction begins in a year, so you select a 12-month certificate so that you can access the money quickly. Your estimated $50,000 will earn $400 for 12 months with a 0.80% annual percentage rate.

The Basics of Certificate Laddering

Certificate laddering means creating different “rungs” along your savings path. You invest in multiple certificates, staggering the maturity dates. This way, you take advantage of higher rates while making money accessible each year if needed.

Here’s what it might look like. Instead of investing $5,000 in a five-year certificate, you invest $1,000 apiece in one-year, two-year, three-year, four-year and five-year certificates. The interest rate for each one is a little higher than the previous one.

When you receive the money from your first mature certificate in one year, you can cash it out or put it into a five-year certificate with a higher interest rate and continue adding rungs each year.

Should I Use a Certificate for a Savings Goal?

Yes, certificates are a great option when trying to reach a savings goal because they allow you to save and earn money over a long period of time. This low-risk investment has flexible term options and a variety of rates. Certificate laddering provides access to funds and the opportunity to invest in multiple certificates. Our certificate dividend rates often outpace the national average. Learn more about our certificates and discover other available savings options, including our Goal Savings accounts that allow you to customize a goal to work toward.