What Is a Certificate?

Saving money is one of the cornerstones of financial security, and among the many savings options available, certificates are one of the safest and most reliable tools you can use to help you reach your financial goals. 

Certificates allow you to earn interest on your savings, essentially putting your money to work on your behalf. Whether you're saving up for a large purchase or simply building up your rainy-day fund, certificates offer you a risk-free method for earning a guaranteed fixed rate of return on your money.

How do certificates work?

A certificate is basically a promissory note issued by your financial institution in exchange for a lump sum of money you deposit. These are to Credit Unions as Certificates of Deposits are to banks. They guarantee you'll earn a predetermined fixed rate of interest on your deposit over a set period of time. Once this time period is up and you reach what is known as the maturity date, you can receive the money you deposited along with whatever interest you earned or you can reinvest with another certificate.

The great thing about certificates is their safety and predictability; it's comforting to know your money has been safely invested in a stable financial institution. Not only is your deposit insured up to at least $250,000 by the NCUA, but you know exactly what you're going to earn right from the start, making it much easier to plan for the future.

Certificates offer better rates

One of the biggest advantages of using certificates is that the interest rates are superior to those of traditional savings accounts. This can help diversify the savings portion of your portfolio beyond the traditional savings account you might already have. Depending upon your needs and financial goals, a certificate might even serve as a viable alternative to a traditional savings account.

Understanding certificate laddering

Certificate laddering is an excellent way to leverage the different term lengths and interest rates of varying saving certificates in order to maximize your savings. Here's how it works:

Let's say you have $6,000. You can start by investing equal amounts of money ($2,000 a piece) into one-, two-, and three-year certificates.

Once the one-year certificate matures, take that money and reinvest it into a certificate with a longer term – e.g., another three-year certificate. At this point, the other two certificates (the two-year and three-year) have one less year remaining until maturity.

Once the two-year certificate matures, reinvest those proceeds into another three-year certificate. At this point, your original three-year certificate only has one year remaining until maturity.

At the end of year three, your original three-year certificate has reached maturity, and you now have three three-year certificates maturing every single year. This gives you the ability to cash out one certificate per year without having to worry about early withdrawal penalties. Not only does this provide greater flexibility in terms of having access to funds, but since all of your funds are now in longer-termed certificates, you'll be earning higher interest rates as well.

If you're looking to boost your portfolio with a low-risk but effective savings option, certificates are a fantastic choice. General Electric Credit Union offers safe and highly flexible certificate options to help you earn a solid return on your savings without sacrificing financial stability.

With terms ranging from and the ability to begin earning with as low as $500, certificates can play a key role in helping you develop a robust savings strategy. Contact the team at General Electric Credit Union to open a certificate today!