What is a Share Certificate?
When looking for the best way to invest and grow your money, there are plenty of options out there that have varying levels of risk and reward. One of the ways you can build your savings with little risk is through a Share Certificate, what is known as a CD (certificate of deposit). This type of investment is similar to your typical savings account, but with a few key differences. Learn more about CDs and how they can help you save with this guide from OnPath Federal Credit Union.
What is a Share Certificate of Deposit?
A Share Certificate is the same financial instrument as a CD. It consists of one type of savings account that has a fixed maturity date and interest rate over its length. You are able to invest any denomination of money, as long as it is above the minimum balance threshold, and can choose the period of time when the CD will mature. This fixed maturity date means that the CD cannot be withdrawn until that day arrives. The typical length of a CD will be anywhere from three months to five years. If an emergency occurs and you need access to the CD’s funds sooner, you can withdraw a portion of the money but it will incur a penalty.
CDs can reward those who are thinking long-term about their financial future and will not need as much financial liquidity to respond to emergencies or large unexpected costs. CDs are considered a safe investment because they are federally insured at an amount up to $250,000 per person.
Why use a Certificate of Deposit?
The main benefit of using a CD instead of a typical savings account is the amount of interest you are able to accrue before the maturity date. A CD will offer higher interest rates than a savings account because you are agreeing to hold your money for a longer period of time in the credit union without being able to access the fund. The longer the term, the higher the interest rates will be.
What is a CD Ladder?
A creative way to use CDs to your benefit is to create a CD ladder. This is a process where you set up five CDs with maturity rates at one-year intervals, starting at one year and going up to five. After the first CD matures after a year, you reinvest the money into a five-year CD. Complete this process for the next few years, and eventually you will have a setup where a five-year CD is maturing every year, granting you access to funds more frequently than normal while still reaping the benefits of a long-term CD. This is a great way to maintain flexibility in your funds and continue to build up your savings.
Start Saving Today
Before you set up a Share Certificate of Deposit, think about the expenses you'll have over the coming years. If you think you'll need access to funds in the near future, consider opening a savings account. But, if you have reviewed carefully and are ready to invest in your future, contact us at OnPath Federal Credit Union to set up a share certificate and watch your money grow.