What is a Certificate Account and How Do They Work?

Certificates – also known as certificates of deposit (or CDs) – are a unique type of savings account that grows at a guaranteed higher rate without exposing your money to the ups and downs of the stock market.

Unlike a savings account, you can’t withdraw or deposit money once you’ve opened a CD. Instead, your money stays in the certificate for a set time which can be anywhere from six months (short-term CDs) to five years or more (long-term CDs). When your CD matures, or the term ends, you’ll receive a short grace period during which you can decide to change the term of your CD, add, or reduce funds, close the account, or renew with the same term. If you withdraw prior to the term ending, you’ll likely pay penalty fees.

 What Are the Benefits of a Certificate Account?

When it comes to your savings goals, a CD is a smart financial move.

Safety

Like savings accounts, CDs are safe investments. They are insured up to $250,000 per account owner by the National Credit Union Administration (NCUA) at federal and state-chartered credit unions, and by the Federal Deposit Insurance Corp. (FDIC) at banks. This means you’re covered in case your financial institution shuts down or goes out of business.

Guaranteed returns

With a CD, you choose your term at a fixed rate, so once you open your account and lock in your rate, you can expect to earn the same rate throughout the term you selected. This allows for easy financial planning and determining the amount of interest you’ll earn over time.

Higher rates

CDs tend to offer higher interest rates than traditional savings accounts. Rates usually depend on the length of the term. The longer your certificate term, the more dividends you can potentially earn.

Certificate laddering

When you build a CD ladder, you invest in multiple certificates with different terms rather than keeping your money in one account. The goal is to blend longer-term CDs with shorter-term CDs so they have staggered maturity dates.

For example, instead of purchasing a single large certificate, a member might break the sum they plan to invest into five parts and put equal portions into a one-year, two-year, three-year, four-year, and five-year certificate. When the one-year certificate matures, they then take the money and reinvest it in a five-year certificate. By continuing that process, the member will have a certificate reaching maturity for the next five years.

Should You Invest in a Certificate?

The best time to open a CD depends on your financial goals, timeline, and how often you expect to need access to your money. If you’re looking for a predictable, safe investment that earns you a competitive rate, a CD could be a good fit. Think about how long you can afford to be without access to your cash until the CD matures, and choose your term based on that.

Take Advantage of Limited-Time CD Rates!

If you’re ready to maximize your savings potential, take advantage of Energy Capital Credit Union’s limited-time CD rates to help you grow your money. If you’d like some more info, give us a call at 832.604.4848, or lock in your guaranteed rate today!