If you’ve been following savings rates, you may have noticed that share certificate rates and Certificate of Deposit (CD) rates have been steadily rising in recent months. Learn why now may be the right time to open one.
As a reminder, both are a type of savings product in which your money grows while you cannot touch it for a fixed period; share certificates are offered by credit unions and pay dividends, while CDs are offered by banks and pay interest. 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, with dividends compounded monthly. The yield, often referred to as an APY, or Annual Percentage Yield, is a normalized compounding of dividends (dividends calculated on your deposits plus and dividends you’ve already earned) after one year.
Certificates have always been a great, low-risk way to save money – for credit union members, your savings are insured by the NCUA up to $250,000, while the FDIC insures CDs for the same amount. Yet, when compared to other investment or saving options, they generally haven’t had the most exciting reputation. But in today’s economy, the popularity of certificates is once again on the rise. Let’s examine why.
Certificate rates are typically affected by changes to the Federal funds rate, also known as the Fed’s benchmark rate. The Fed funds rate is the interest rate that commercial banks charge one another to borrow money overnight, as banks must maintain a reserve of cash equal to a percentage of their deposits at all times.
When the Fed raises its target rate, financial institutions typically follow suit and increase their interest rates, including those on certificates. That’s because when the Fed’s target rate goes up, the cost of borrowing from other banks increases. At a time when banks and credit unions may need to fund more loans – such as now – they need to grow their deposit base, which means you will start to see savings rates (APYs) go up.
Because interest rates were at historic lows due to Fed rate cuts following the Great Recession, CD and certificate rates had been relatively flat until recent times. However, when the Fed began increasing rates to combat inflation in mid 2022, share certificate and CD rates began to rise again.
At Service Credit Union, we have some great certificate rates on offer, including a 5.15% APY* share certificate for just a 12-month term and $500 deposit. That means if you were to deposit $10,000 today, you could earn $527 in dividends after one year. Have a little more to put away? With our 18-month certificate at 5.25% APY**, you could earn over $2,000 with
Because the economy is so unpredictable, you may want to consider opening a share certificate sooner rather than later to lock in these great rates. As mentioned above, your money will be safe and secure while your dividends compound every month.
*Rate shown is Annual Percentage Yield (APY), accurate as of 10/01/23, and subject to change without notice. Penalty for early withdrawal. The APY is based on the assumption that dividends will remain on deposit until maturity and that a withdrawal or fee will reduce earnings. Certificates are fixed-rate accounts and will remain in effect until maturity. The dividend rate and APY may change on the 1st and 16th of every month, as determined by the Board of Directors.
**Rates shown is Annual Percentage Yield (APY), accurate as of 10/01/23, and subject to change without notice. Minimum deposit of $25,000.00 in new money required. New money is defined as funds that are not from any account held with Service Federal Credit Union; transfers between Service CU accounts or its affiliates will not qualify. Penalty for early withdrawal. The APY is based on the assumption that dividends will remain on deposit until maturity and that a withdrawal or fee will reduce earnings. Certificates are fixed-rate accounts and will remain in effect until maturity. Dividend rates and APYs are subject to change on the 1st and 16th of every month, as determined by the Board of Directors. If certificate is set to automatically renew on maturity, it will renew at the rate offered for the standard $500 minimum balance certificate 6 month or 18 month terms. Must be a member of Service CU or eligible for membership with at least $5 in a Primary Savings Account. Offer subject to change or be discontinued without notice.