By Dave Dwyer – June 19, 2018
In the early years of my career as a Service Credit Union financial service representative, many members came to me looking for a high-yield, short-term way to shore up funds for the future. I quickly learned that a certificate is just the right way to get them there. This product is a great way for credit union members to grow their savings just by keeping their money safe for a predetermined period of time.
Not all certificates are created equal. You’re probably familiar with the term CD, or “certificate of deposit,” while not as many may have heard of its cousin, the share certificate. Banks have certificates of deposit and credit unions have share certificates. Because of the difference between banks and credit unions, a certificate of deposit pays interest and a share certificate pays dividends. As a member-owned financial institution, a credit union can typically offer better rates than banks.
But what is a certificate? This financial product is a low-risk way to increase your savings over a fixed period of time called a term. During the term of a certificate, you cannot touch your money. In the meanwhile, you earn a fixed percentage yield which is given back to you upon the completion of the certificate’s term. The yield, often referred to as an APY, or Annual Percentage Yield, is a normalized compounding of dividends after one year. Term lengths vary and usually start at a minimum of 12 months, but the longer they are, the higher the yield.
While you own this certificate, you cannot withdraw money or “break” the certificate without paying a penalty. You also may incur more taxes if this income pushes you into a higher tax bracket. Because there is a stop gap to withdrawing funds early, your financial institution can offer you a higher yield than it can with a savings account.
The certificate has a minimum balance as an initial deposit, but there is rarely a maximum balance. That means that most of the time, you can put in as much money as you like. This money is safe up to $250,000 with National Credit Union Administration (NCUA) insurance. That means certificate funds are protected up to that amount from even the most catastrophic economic disasters.
After the term of your certificate ends, you can either roll the certificate over or take the money out and place it back into a regular checking or savings account. The more you put into the initial deposit, the more you earn!
As a branch employee, I saw certificates opened for a grandchild’s next birthday, “happy retirement” vacations, or even weddings. This concept of both savings and security allowed credit union members to store their cash knowing they would not be able to touch it, and that it would be ready when the time came to use it.
Various yearly promotions would also flood the branch, most notably the Black Friday certificate, which usually has a maximum limit. This short-term, high-yield certificate was a draw for everyone – particularly, families with children. By opening certificates for their children, parents were able to teach their kids about savings and the value of waiting on something.
If you find yourself holding onto savings for a major event, a nest egg or a future vacation, you may want to store your money somewhere safe and secure, knowing that you will have your money back plus dividends at the end of the term. Get some peace of mind and check out Service Credit Union’s current certificate offerings.