A Practical Guide to Share Certificates
In today’s economy, saving money can feel like a balancing act. On one hand, you want your money to stay accessible. On the other hand, you want it to grow without taking unnecessary risks. That’s why share certificates are a great middle ground between basic savings accounts and higher-risk investments.
First things first, what is a share certificate?
Share Certificates and How They Work
Share certificates are a type of savings product offered by credit unions where you agree to deposit a set amount of money for a fixed period, also known as a term, in exchange for a guaranteed interest rate.
Unlike a savings account, you agree not to touch the money for a set length of time, and in return, share certificates normally offer higher interest rates.
Share certificates have:
- Fixed Terms: Terms typically range from three months to five years or longer.
- Fixed Interest Rates: Once you open the share certificate, the interest rate is locked in for the entirety of the term.
- Dates of Maturity: When the term ends, the certificate reaches maturity, and your funds are available.
After your date of maturity, there is typically a short grace period, during which you can withdraw your money, renew the certificate for another term or move the funds to a different account.
The Benefits of Share Certificates
If you are looking to save money, share certificates could be a good option. Benefits include:
- Predictable Growth: Unlike market-based investments, certificates offer predictable growth. No worrying about stock-market swings, especially during economic uncertainty.
- Rate Lock Advantage: With share certificates, your rates are fixed, so even if rates drop after you open your certificate, your return stays the same.
- Security: Share certificates opened at insured credit unions are protected by the NCUA up to $250,000. This makes certificates one of the safest high-yield savings options available.
While share certificates are a good choice for many people, some trade-offs may affect whether they are the right choice or not for you.
The Trade-offs of Share Certificates
Again, share certificates offer many benefits, but some limitations may not fit your financial goals:
- Lack of Liquidity: With a certificate, you do have reduced access to your money. Once your funds are deposited, they must remain in place until the certificate matures.
- Early Withdrawal Penalties: However, if you must withdraw your funds early, you may face a penalty, often equal to a set amount of interest. It may make sense for you to pay the early withdrawal penalty in some cases, such as when you need emergency funds.
- Inflation Adjustment: Because certificate rates are fixed, they may not always keep up with inflation. Over time, this could reduce your purchasing power.
Now that you know the benefits and drawbacks of share certificates, how do you know if they are the right fit for you?
The Share Certificate Checklist
A certificate may be a good fit for you if:
- You’re saving for a dated expense, such as a down payment.
- You want to safely deposit a sum after selling an asset.
- You think interest rates may fall and want to lock in a rate.
A certificate may not be a good fit for you if:
- You may need the funds to be liquid for emergencies.
- You carry high-interest debts.
- You’ll need the funds within 30 to 60 days.
Share Certificates and You – Next Steps
Think a share certificate is the right move in your financial journey? We can help with that!
Check out our current rates, open an account online or schedule an appointment with one of our trusted certified financial counselors today to take that next step.
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Belonging Starts with Your New Checking Account.
Exclusive Checking and Savings Bundle from Piedmont Advantage Credit Union
Switching to PACU isn’t just about better banking. It’s about belonging to a financial institution that prioritizes people over profits and community above all else.
For a limited time, open a PACU Simple+ Checking or More Checking account1 to unlock a gift of a PACU Mid-Century Baseball Hat or PACU Nostalgia Tote Bag2. Pair it with a new 12-month or longer-term PACU Share Certificate3 to receive another one of these great gifts.
Headquartered in Winston-Salem, North Carolina, and founded in 1949 within the aviation industry, Piedmont Advantage Credit Union (PACU) serves member-owners, who reside, work, worship, attend school or operate a business in one of the six counties it serves in North Carolina or who are employed by one of its many employer companies. These six counties are Davie, Forsyth, Guilford, Iredell, Mecklenburg and Rockingham.