What is a Savings Certificate?

Savings certificates have a fixed rate and term which allows you to do a one-time deposit and build your savings in a stable environment. Credit unions offer competitive dividends, letting you earn more money on your deposit by simply locking it in a savings certificate. Some credit unions let you deposit for as little as $500 or offer short terms, like three months. In addition, they don’t have monthly fees which keeps the money where it belongs: in your pocket. Yet, if you decided to withdraw before the end of your term, you will be served a penalty fee.

Learn more about the differences and what happens once you’ve reached the end of a term.

Savings Certificate vs. Regular Savings Account

The idea of a savings certificate probably sounds similar to a regular ole savings account, so make sure to note these key differences:

  • Savings certificates have higher interest rates than savings accounts. A regular savings account is lucky to offer .05% interest on the money in your account. However, savings certificates can offer several percent, like 4% APY. This means higher yields on your investment!
  • Rate changes. Regular savings accounts can have their interest rates fluctuate over the years. You could go from .05% dividends to .01%. You’ll earn barely anything while your rate is that low, unlike savings certificate. Once you deposit your funds into a savings certificate, you’re locked into a fixed rate. So if your term is 24 months, your rate with stay the same for those 24 months.
  • The only big downside to a savings certificate is the lack of access to these funds. Whatever the term, your money needs to stay in the certificate for that long, or you will face penalty fees. With a regular savings account, your money is on-demand and ready to be spent whenever you need it.

What Happens at Maturity?

When your savings certificate hits maturity, it means your money is all grown up. It’s reached the end of the term and is ready for you to decide what to do with it. Your credit union will send you a notice when the term is about to end with three options:

  1. Withdrawal – You’ve done what you’ve set out to do. If you were saving for a specific purpose, maybe a down payment for a car, then it’s time to withdraw the money and get yourself a new ride.
  2. Transfer funds – You can choose to transfer the funds into another savings certificate with a new interest rate and term.
  3. Roll over – Oftentimes, credit unions will offer a “roll over” option. This means you don’t have to do anything on your end. Just let the credit union roll over the savings certificate. The credit union will roll the funds over to the nearest standard term available with whatever interest rate is attached.

Is a savings certificate right for you? Learn more about your local credit union’s rates and terms.