Three Things to Know About Term Certificates

Lesson #1

Term certificates, also known as term deposits, are products offered by financial institutions that earn a higher interest rate than a standard savings account if you keep your money there for a specified duration of time to maturity. These “terms” can last as little as several months to as long as 10 years.

At a bank, this type of product is called a “certificate of deposit,” or CD. At a credit union, a term certificate is also called a “share certificate” because the credit union member who purchases the product owns a “share” of the institution (credit unions being federally designated cooperatives). Throughout the banking industry, the names are often used interchangeably.

Lesson #2

Term certificates aren’t for everyone. They require you to keep your money in the account for the length of the term, and impose financial penalties if funds are withdrawn early. So if liquidity is important, this type of product is not as ideal as a traditional checking or savings account.

However, if you have savings that you won’t need instant access to, a term deposit could be a great way to make that money work harder. It offers safety because your funds are protected, as long as they are held by a financial institution insured by the federal government (FDIC for banks, NCUA for credit unions). Term deposits also offer predictability, with a guaranteed rate of return. And again, they typically earn interest/dividends at a higher rate than a basic savings or money-market account.

Lesson #3

The biggest critique of term deposits is their rigidity, both in the form of how long your funds are inaccessible, and in regards to the interest/dividend rate you’re locked into. Those rates change all the time, and once your money is deposited, you can’t take advantage of a higher interest/dividend rate if one is offered within the span of your maturity period.

However, there is a savvy strategy known as building a “ladder,” where you spread your savings across multiple term certificates with staggered term lengths. This frees up portions of your money as each term ends and lets you take advantage of the higher interest/dividend rates typically offered by long-term term certificates.

The key is to re-deposit the money and interest earned in long-term certificates that maintain the staggered maturity structure. This strategy ensures that portions of your money becomes accessible at regular intervals. To see how to build a certificate ladder, check out this example given by NerdWallet^TM.

Get started now by checking out the wide range of term certificates offered by BluPeak. Our diverse selection gives you all the options you need to meet your long-term savings or retirement goals.

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