Share certificates are a way to make your money work for you in a secure environment. If you’re interested in learning more, the following is a step-by-step guide to opening a share certificate. You can even access our helpful certificate earnings calculator to find out the dividends you can earn with a certificate before you get started.
Think About Your Financial Goals
Are you saving money for a long-term, specific goal, such as putting a down payment on a house or paying for college? Your financial goals will help dictate how long you’re willing and able to invest your money without having access to it. They will also help you determine how much discretionary income you’re able to set aside in a certificate.
Choose the Right Financial Institution
The next step is choosing a financial institution to work with. Share certificates are offered by many credit unions, but not every one, and they aren’t all created equal. Research the credit unions you’re interested in. Read reviews from current or past members to learn about people’s experiences. You should only choose a credit union that is federally insured through the National Credit Union Association (NCUA) so that your funds are protected up to a certain amount.
Compare dividend rates available. Of course you want the best return on your investment, but don’t forget to consider dividend rates in conjunction with other factors that might affect you, such as minimum deposit requirements, term lengths, and penalties for early withdrawal.
Convenience matters as well. If you prefer to make transactions online, make sure the institution has that option available to you and that their platform is easy to navigate and secure. If you find it easier to do your banking in person, choose a credit union with a physical branch near you. Also, check with your current credit union to see if they offer share certificates. The process can sometimes move faster when you already have an account.
Understand the Terms and Dividend Rates
When looking into certificates, consider the following:
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Term length: How long will your money be tied up? Options typically range from three months to five years.
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Dividend rates: How much in dividends will you be earning? Most certificates come with a fixed dividend rate, and longer terms usually offer higher dividend rates.
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Compounding frequency: How often are dividends compounded (i.e., monthly, quarterly, or annually)? The more frequently dividends are compounded, the more your investment will grow.
How do you choose the best option? Depending on your specific goals, you might prioritize the highest dividend rates, especially if your goals are longer-term and you don’t need the money soon. However, you should consider your liquidity needs as well. If you think you might need access to the funds sooner, then a shorter term may be your best option. Keep in mind the minimum deposit requirements of your chosen financial institution as well.
Using a certificate earnings calculator like the one Capital Credit Union provides can help you explore different scenarios, taking into account different deposit amounts, term lengths, dividend rates, and compounding frequency.
Check Fees and Penalties
Before you open a share certificate, closely read all the information about early withdrawal penalties. These can often be significant amounts, and you should be comfortable with the idea that the funds you invest in your certificate account are off-limits until the end of the term.
Some financial institutions might also have maintenance or set-up fees, so be aware of these as well.
Open the Share Certificate
Once you have chosen a financial institution and understand the terms, dividend rates, potential penalties, and fees, it’s time to open your share certificate account. Depending on your preferences and choice of credit union, plan to visit a branch in person or apply online. You’ll need personal identification information, including your Social Security number, driver’s license or other government ID, proof of residence, and so on.
Once you provide your information and set up your account, you should be ready to deposit your funds. Many people fund their certificates via transfer from a bank account, with direct deposit (ACH), or by writing a personal check.
Double-check all the details (terms, dividend rate, compounding frequency, fees, etc.) before signing the agreement. Keep a copy of the terms and conditions for your files.
Manage Funds to Maximize Savings Potential
Some individuals employ a laddering strategy to allow them to invest more funds while still being able to access some when they need it. With this strategy, you invest funds across multiple certificates that have different maturity dates, which means you can access some funds that mature sooner while still benefiting from higher dividend rates on longer-term deposits.
Ask your credit union whether they offer the option to reinvest the dividends you’re earning. This simple strategy can allow you to earn additional savings as the dividends compound.
Track your dividend payments and monitor dividend rates. If dividend rates rise dramatically, it might make sense to withdraw your funds and open a new certificate at a higher rate once your current certificate matures. Some institutions will automatically renew the certificate at the term’s end unless you withdraw the funds, so be mindful as your maturity date approaches.
Let Your Money Work for You with a Share Certificate
At Capital Credit Union, we offer a variety of options to help you get ahead on your financial journey. If you’re interested in share certificates, use our certificate earnings calculator to get an idea of how much you can earn based on your specific funds and considering your needs and preferences. We offer both traditional certificates and a Member’s Choice Certificate, which gives you more flexibility by allowing a one-time penalty-free withdrawal.
Schedule an appointment with us today to learn more about all your options and all the ways we can help you, and then watch your money grow!