With the new year, we often set goals. One may include saving money for a targeted objective, aspirational adventure, or well-earned purchase. Depending on your financial situation, you may be able to attain your goals quicker by opening a Certificate (commonly referred to in the non-credit union banking world as a CD or Certificate of Deposit). The difference between a Certificate and a CD are:
| Certificates | CDs |
| Offered by Credit Unions | Offered by Banks |
| Pay in Dividends | Pay in Interest |
| Insured by the NCUA (up to $250,000) | Insured by the FDIC (up to $250,000) |
A Certificate is a low-risk financial vehicle that allows you to grow your money at a known fixed rate for a specified period of time. These fixed rates are often higher than traditional savings account rates because they require the certificate owner to leave the money untouched. Although the funds can be prematurely withdrawn, this will come with a penalty that will often negate the gains of the dividends earned. As such, this savings instrument should not be considered for an emergency fund.
Certificates come in various term lengths, and the dividend rate is tied to that term. Often, the longer the term, the higher the interest rate. It is essential to pick the term length with which you are comfortable. Term lengths vary between 12 – 60 months. No term lengths apply to a savings account. However, the interest rate on a savings account is variable. It goes up or down based on several factors, including the Federal rate and various economic conditions.
When should you place your money in a Certificate versus depositing your money in a savings account? The main factor to weigh is the accessibility to your money. Can you sacrifice accessibility for a higher interest rate? Considerations for deciding between depositing your money in a Certificate or savings account:
When to consider a Certificate account:
- You do not need your money for the term of the Certificate
- You have a larger amount to deposit (you cannot add money over time)
- You want to lock in your interest rate
- You want to know exactly what you will earn
When to consider a savings account:
- You need access to your money
- You have a smaller amount to deposit (you can add money over time)
- You are looking to put money aside but not necessarily grow it
- You are ok with lower, fluctuating interest rates
Let a Welcome representative help guide you through your financial options. Whether you are looking to kick start a college fund, a retirement nest egg, or simply save for a fun getaway; WFCU has the savings options for you. At Welcome we offer Certificates, Savings Accounts, and Money Market Accounts. We will help you understand and navigate each saving vehicle, so you pick the right one for your financial situation and goals.