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Save Better With These Certificate Strategies

Saving money is a key component toward your financial wellness. What does it mean to save better? One of the most common savings tools is known as a Certificate, which is offered at credit unions and other financial institutions.

Learning about Certificates and savings strategies can help you develop lifelong skills at saving money. This will help you improve your financial wellness, both today and tomorrow.

What is a Certificate?

Travis Credit Union and other credit unions offer a Share Certificate as a savings tool for our members. Share certificates, which banks refer to as Certificates, generally come in a variety of terms (usually a period of months) and provide a higher yield or interest earning than you would receive from a typical savings account. This makes Certificates popular for those who want to set aside money specifically to grow their savings.

Certificates are a safe, practical, and convenient way to invest your money. Unlike high-risk investments such as stocks that may fluctuate over time, your money will always be federally protected in a Certificate. Credit union share certificates are insured up to $250,000 per account holder by the National Credit Union Administration (NCUA). This is similar to the protection provided to bank accounts by the Federal Deposit Insurance Corp. (FDIC).

How do Certificates Work?

When you deposit money into a Certificate, you’ll be required to keep the money in the account for the term period that you have selected. In return, you’ll receive the interest rate or yield that’s specific for that term. Typically, you’ll be able to access your funds before they mature if you need them, but doing so may lower the amount of interest you earn on your money. Depending on the financial institution, there may be penalties assessed for early withdrawal of funds.

Because a Certificate provides a pre-determined annual percentage yield, (APY,) savers may miss out if interest rates increase while their money is tied up in a Certificate. On the flip side, if interest rates decrease, their money will continue to earn at the rate they locked in. Once a Certificate matures, members may reinvest their money into another certificate if desired.

Strategies for Certificates

Knowing how certificates work will allow you to get the most out of this financial tool so you can save better. There are three primary savings strategies:

  • Laddering: This strategy helps to mitigate both interest rate and reinvestment risk by taking the total amount of money you plan to invest and dividing it equally across certificates with different maturity dates. By doing so, you’ll take advantage of the highest rates with each term without sacrificing much flexibility.

    As each certificate matures, review the current interest rates and your need for funds. You can choose to reinvest that money in a higher-interest rate certificate or cash out. Keep in mind this strategy takes a good amount of time and patience but may provide a safe, steady flow of interest income.
  • Barbell: This approach focuses on dividing up funds to invest in short-term and long-term certificates only. This provides you with flexibility while it reduces the amount of time it takes for your certificates to mature.

    The barbell strategy can help individuals with clear short-term and long-term goals save better. For example, if you’re saving for a vacation next year and want to save with certificates, a short-term certificate will give you a higher interest rate than an average savings account. But a long-term certificate will give you an even higher rate than the short-term certificate.
  • Bullet: Those with larger savings goals may opt for what is known as bullet strategy. This method requires investing in several certificates over time and focusing on a specific maturity date. This strategy will provide you with a higher rate of return on savings and will provide you with more money when your certificate matures. For example, if you’re saving for college, a bullet strategy, to deposit funds as you move towards your goal, can help you earn more from your investment.

How can TCU help you save better?

We offer many savings products to meet your goals, including Share Certificates and Individual Retirement Accounts. Open an account online or stop by a branch to get started. You can also take our Financial Wellness Assessment to learn more about money management.

Forbes Top 10 Credit Unions in California Award
Desjardins Financial Education Award, 1st place nationwide, adult and youth
US Air Force Distinguished Credit Union of the Year
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