How CDs and Term Share Certificates Can Help You Save Big This Year
As you explore various savings options, you may have come across the phrases term share certificate (also called a “share certificate” or “credit union certificate”) and certificate of deposit (CD). Though the names are different, they both refer to essentially the same thing—a high-interest account that grows as quickly as possible, as long as you don’t empty it too soon. Read on to learn how term share certificates and CDs can help you save big in the year—or years—to come.
What is a term share certificate?
A term share certificate is a type of savings account option offered by a credit union. These accounts offer much higher interest rates than regular savings accounts, but with a catch: the account holder must agree to leave their money in for a lengthy period of time. That time period—called a “term”—can range from three months to five years. If the holder withdraws funds before the term is up, they will incur a penalty or surrender any interest that the account has earned.
Are certificates worth it?
That depends what you mean by “worth it,” but usually, yes! When you put your money in a certificate, you can experience a host of benefits, such as:
- A guaranteed rate of return. In other words, as long as you don’t withdraw your funds too early, you will be able to accurately calculate the rewards for your patience.
- Low initial opening deposits. Most credit unions allow you to open a certificate with as little as $500. Other savings options, like money market accounts, typically require a larger initial deposit, and don’t have as high of an interest rate.
- Flexibility. Most certificates allow you to choose the deposit amount, the term length, and the interest rate you will receive. Also, many credit unions will allow you to make a one-time, penalty-free withdrawal if you experience an unexpected emergency.
Is a Term Share Certificate the same as a CD?
Pretty much. A Certificate of Deposit functions in almost entirely the same way as a Term Share Certificate. In both cases, the depositor makes a commitment to keep their money in the account for a long period of time and receives a high interest rate in exchange. Additionally, Certificates of Deposit usually operate by the same rules of engagement as term share certificates—i.e., if you withdraw your money too early, you’ll incur a penalty.
What are some other savings account options at credit unions?
Since certificates require you to stash your money away for a while, they may not be the best option for those who need to access their cash frequently and quickly. Fortunately, other savings options are available at both banks and credit unions:
- Traditional savings accounts can be opened with a very low minimum deposit and will usually allow you to make multiple withdrawals per month without penalty.
- Money market accounts pay higher interest rates than traditional savings accounts but will require you to maintain a higher balance.
- Individual Retirement Accounts (IRAs) allow you to save for retirement on a tax-free or tax-deferred basis, depending on which type of IRA you choose.
However, since certificates typically receive the highest interest rate of any savings account type, they’re still the fastest way to grow your money.
Is it worth joining a credit union to start a savings plan?
If saving is your number one goal, credit unions are often a better choice than banks. This is because credit unions are not-for-profit institutions which exist to benefit their members, who are also their owners. Almost all profits are redistributed to members in the form of higher interest rates on savings and other bonuses.
Banks, by contrast, are owned by shareholders and have a responsibility to generate a profit for them. Often that profit is generated through higher and more frequent fees, steeper penalties, and lower interest rates for members. Since a credit union is owned by its members, it will offer them the best terms it can afford.
How can I get a certificate with a credit union?
Getting a certificate through a credit union is overall pretty simple—it just involves scheduling an appointment with a representative once you’re a member. To join a credit union, you’ll first have to identify a union whose membership requirements you could meet—like belonging to the same religious organization, place of employment, or geographic location. One of the best ways to do this is through a credit union finder like ours.
