- May 31, 2023
- Posted by General Electric Credit Union
- 4 read
Improve Your Certificate Vocabulary and Start Saving Smarter
Saving for the future can feel like swimming upstream – especially during periods of high inflation when the cost of everything goes up. That’s why you need a savings solution that propels your money forward. A certificate, which is to credit unions as certificates of deposit (CDs) are to banks, will maximize your money with a higher return for a pre-determined term. Use the vocabulary guide below to better understand how certificates work.
Must-know certificates language
Annual percentage yield (APY)
The APY is simply the annual rate of return you’ll get from an account. One great thing about certificates is that the APY is often fixed. This allows you to lock in a generous rate. Factors like inflation, changes to the Federal Reserve’s benchmark, and competition between financial institutions won’t cause it to go up or down. As a result, you’ll know exactly how much you’ll earn by the time the certificate matures.
- Discover additional accounts that earn an APY, including high-yield checking and savings accounts.
The term of a certificate is how long you must keep the funds in the account before you can withdraw them without a penalty. Certificates can have term lengths anywhere from a few months to several years. Be sure the term of a certificate is realistic for your current needs and budget. Doing so will ensure you get the most out of these savings vehicles.
The maturity date of a certificate is the date its term ends. You have two options once this day arrives: Renew the certificate or withdraw the funds. By renewing a certificate, you’re telling your financial institution to reinvest the funds into another certificate. Depending on the bank or credit union, you may be able to keep your same account number.
Early withdrawal penalty
Most certificates have a penalty for withdrawing funds before this maturity date. But while it’s not advised to pull the funds prematurely, life happens and the need for money may arise. By understanding the terms of your certificate and taking advantage of certificate laddering, you can hopefully avoid these situations.
A common strategy to increase earnings and maintain liquidity is certificate laddering. If you don’t need your funds at the time of maturity, reinvest them into a longer-term certificate. You may get the benefits of better interest rates with the assurance you can access some of your money periodically, if needed.
For example, rather than putting $1,500 into a single 3-year certificate, you might put $500 in a 1-year, 2-year, and 3-year certificate. When the first certificate matures, you can reinvest it in a 3-year certificate and repeat the same process with the other certificates as they mature. This gives you regular access to your funds in case they’re needed while still taking advantage of higher returns.
Whether you’re saving for a trip, the down payment for a home, or funds to get a business idea off the ground, certificate returns are guaranteed. You’ll feel confident in your savings strategy knowing exactly what a one-time deposit will earn. General Electric Credit Union offers competitive certificate rates and a variety of terms. Plus, no minimum deposit so you can earn no matter where you’re starting from. Visit us online to learn more about these accounts and how to open one!