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Certificates of Deposit: Low-Risk and Reliable Return

When you have some cash saved up, you want to help it grow and keep it safe. A certificate of deposit, also known as a CD, could be the option that gives you the best of both worlds. To determine whether and when a certificate is the right savings option for you, consider three advantages of certificates along with your personal goals: interest rate, access, and timing.

What Is a Certificate of Deposit?

A certificate of deposit is a specific kind of savings account with fixed rates and terms. You make an initial deposit into the account for a fixed amount of time, then earn a predetermined interest rate on that money when the certificate matures at the end of that time period. Typically, there’ll be an initial minimum deposit to open a certificate. The terms can range from a few months to five years or more. Remember, the longer the term, the higher the rate of return.

Great Interest Rates
Most certificates offer rates that are higher than other savings accounts. And when interest rates are high in general, certificates of deposit rates can be very attractive, sometimes with a rate of 5.00% or more. But even when interest rates are low, certificates usually offer rates at least a full percentage point greater than that of a regular savings account. For example, if you put $5,000 in a regular savings account with a 0.5% rate for five years, your balance at the end of those five years would be about $5,127. But what if you put that same money in a certificate for the same amount of time? When certificate rates are low, you would still earn more. For example, if the certificate rate were 1.80%, your balance at the end of the five years would be about $5,470. And when the interest rates for certificates are high? If the certificate rate were 5.00%, your balance at the end of the five years would be about $6,381.

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Limited Access but Returns Are Sure
You are making a trade-off when you choose a certificate of deposit over a regular savings account, and that’s giving up access to your money for the duration of the certificate’s term. Unlike a savings account, certificates are not designed for you to make withdrawals — the reason financial institutions offer higher rates on certificates than savings accounts is because you are leaving your money in the certificate for the agreed upon period of time (the full term of the certificate).1 And if you have an emergency and need to make an early withdrawal, there is typically a significant withdrawal penalty you will be required to pay. So why open a certificate of deposit?

Safe, Sound, and Predictable Timing
Wondering when is the best time to open a certificate of deposit? Certificates have a lot of benefits, a key one being that the money you deposit in a certificate is insured by the FDIC for up to $250,000.2 And because in fixed-rate certificates the rate stays the same for the full term, you can easily calculate the interest you’ll earn. That makes certificates an attractive choice for savings goals when you have a known expense in the near future—like college tuition, a wedding, a down payment on a car, or a vacation — or if you want a portion of your savings to be predictable. This is where timing comes in. Make sure you understand the length of the term and won’t need to access those funds until the certificate matures.

Choose the Right Certificate for You

Certificates of deposit are available at most financial institutions, however the minimum deposit requirements, rate of return, time until maturity, and other considerations vary, so be sure to do your research and consider these questions to find the best option for you:

  1. What are your savings goals? How much money are you trying to save, and when do you need it? Timing is key. Choose a certificate that will mature before you expect you will need the money.
  2. What is the best interest rate that works for your goals? Find certificates with the highest interest rates with terms that work within your savings time frame and with minimum deposits that you can afford. Will those rates still be attractive in a few years? If so, lock in that rate by choosing a long-term option. If, however, you think that in general interest rates may soon be higher, choose a short-term option.
  3. Can you cover your expenses before the certificate matures? Remember that certificates of deposit do not make a good emergency fund, because of the penalties for early withdrawal. Consider putting aside three-to-six months of expenses in a savings account that you have immediate access to before making longer-term investments.

With great, known rates, certificates of deposit can be an excellent addition to your toolbox for keeping safe and secure the money you want to save for the future.


1 UFCU Certificate dividends are paid quarterly. Dividends are calculated by the daily balance method. Dividends are based on UFCU's earnings at the end of a dividend period, and cannot be guaranteed.

2 Federally insured by NCUA up to $250,000