• May 20, 2024
  • Posted by General Electric Credit Union
  • 3 read

Super Savings: How Much Money to Put in a Certificate

When it comes to saving, you have a team of super saving options at your disposal. A certificate is one of them. It’s superpower? Hands-off saving with interest earnings! While it’s simple to open—just make a one-time deposit and watch your balance grow over time at a fixed rate—you should carefully consider the amount of money to commit before jumping in! 

What amount should you put in a certificate?  

First, you should determine what’s a realistic amount of time you can go without the funds used to open a certificate. Certificate term lengths can range from a few months to several years. Typically, longer-term certificates offer a higher interest rate than shorter-term ones because your funds stay locked in the account for longer. 

If you anticipate needing access to funds in the near future, opting for a shorter-term certificate may be more suitable. Conversely, if your goal is further off on the horizon and can afford to lock your money away for a few years, a longer-term certificate could yield higher returns. Just be sure not to withdraw funds before the certificate’s term ends, or an early withdrawal fee could foil your plan to save smarter!   

Instead of funding one certificate, you could also break up your allotted funds into multiple certificates and take advantage of a strategy called certificate laddering. To do so, you would open multiple certificates with varying maturity dates. For example, say you have $5,000 allocated. You could split that evenly into certificates with terms of 1, 2, 3, and 5 years. As each one matures, you can either withdraw the funds or put them back into another certificate. This approach maximizes potential returns while maintaining your access to funds at regular intervals.

Lastly, it’s important to review your budget to gauge what’s realistic. While a larger balance will yield more interest earnings, you ultimately need to open a certificate with funds you can do without for the duration of the term length. Use a tool like Money Management to gain better visibility into your cash flow and spending habits.1 A concrete budget will help you determine an amount to set aside for saving efforts that won’t lead to stress. 

  • Have additional funds you want to grow but keep accessible? Diversify your savings strategy and open a Thrive Money Market Account.

Other considerations 

Interest rates fluctuate based on economic conditions and monetary policy, and financial institutions consider these changes when setting their own rates. Before opening a certificate, research the options available to you. In addition to a competitive rate, you should look for a bank or credit union that offers a range of certificate terms and certificate types.

For example, the best financial institutions offer bump certificates. A standard certificate offers a fixed interest rate for the entire term, while a bump certificate allows the accountholder to "bump up" to a higher interest rate if rates rise during the term.

Ultimately, the amount of money you put toward opening a certificate should depend on your unique financial needs and goals. An online certificate calculator can help you better understand the impact term lengths and deposit amounts will have on earnings. For more information on certificates and bump certificates, visit General Electric Credit Union online or schedule an appointment to go over your options with a dedicated team member. We’ll help you harness the power of compound interest!

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