What is a Term Certificate and Should You Consider It?

Two people calculating their finances and considering a term certificate as a savings option.

Lots of people have suffered a bit of financial whiplash, seeing their investments in the stock market swing wildly up and down…and sometimes down even more. Ugh. But stuffing cash into your mattress is not the solution! We’re here to tell you there is a middle ground between the risks and possibly higher returns of investing, and the generally safe but low returns of standard savings accounts.

It’s called a term certificate and with interest rates rising, it’s finding its way into the financial plans of people from all walks of life – from young adults saving up for a car or house down payment, to retirees and near-retirees wanting to dial down their retirement savings risk.

Curious? Read on.

What is a Term Certificate?

First off, let’s clarify what we’re talking about. A term certificate (also sometimes called a “share certificate”) is the credit union version of a for-profit bank’s certificate of deposit (aka “CD”).

It’s called “term” because you’re agreeing to set aside the money for a specific amount of time, or term, and “certificate” to distinguish it from a standard account like checking or savings where you can typically deposit and withdraw funds anytime.

Most financial institutions offer certificates for terms ranging from three months to five years, but sometimes you’ll find terms as short as one month and as long as ten years.

When the term is up, the certificate “matures” and you have a choice – let it automatically renew for the same or similar term at whatever the current rate is, put the money into a new certificate at a different term or rate, or cash it out and take your initial deposit amount plus dividends you’ve earned.

Benefits of a Term Certificate

  • You’ll earn more than on regular savings. Because you agree to keep your money in the certificate for a specific period of time, the financial institution generally will pay a higher rate than you’d earn on their standard account – often, a lot more. That’s especially true of credit union certificates, since we return money we make to members in the form of better rates.
  • Your rate of return is guaranteed. When you open a certificate, the financial institution makes a promise upfront to pay you a specific rate through maturity.
  • Your money is safe. As long as you don’t withdraw your money before the certificate matures and stay under the NCUA’s federal deposit insurance coverage limits your accounts are completely safe and guaranteed against loss of principal. If, for some reason, you have to liquidate the certificate, you’ll only pay a withdrawal penalty which is generally a percentage of earnings accrued up until that time.
  • You won’t pay any monthly maintenance fees. Many standard accounts come with monthly maintenance fees if you don’t meet certain minimum requirements, but that’s generally not the case with term certificates. No fees = more money to your bottom line.


Best Practices for Term Certificates

Once you’ve established an emergency fund of readily available cash (think: standard savings account) that’ll be used to cover essential expenses if you lose your job or get hit with an unexpected bill, you’re probably in a position to consider a term certificate. Here are some tips to consider:

  • Think of it as enforced saving. This is a scenario when playing mind-games with yourself can be productive! By keeping your money in a certificate, you may be less tempted to “borrow” from yourself than you would if the money was in a standard savings account that allows penalty-free withdrawals.
  • Longer is better…except when it’s not. Usually, you’ll earn more on a longer term certificate but that’s not always the case. It’s always important to check rates and make a thoughtful decision about when you’ll need the money, how long you can realistically do without it, and then choose your term accordingly.
  • Use certificates for mid-term financial goals. Say you’re in your 20’s now. When you’re looking way far down the road toward retirement (“Hi, Future Self, I’m lookin’ out for ya!”), most experts recommend diversified investing in stocks and bonds because they’ve historically been the best options over the long term. However, for high-cost mid-term goals like saving up for educational expenses, a car or house down payment, or maybe a trip-of-a-lifetime, the higher rates of return on term certificates compared to standard savings accounts can be a great fit.
  • Use certificates to enhance diversification. If you’re in or nearing retirement, term certificates can be a great option to increase the diversification of your portfolio. Not exactly savings and not an investment, they can bring peace of mind during stock and bond market fluctuations like we’ve had recently.

How to Get a Term Certificate

The great news is that opening a term certificate is as easy as opening any other type of credit union account. If you’re already a member, you’ll just need to reach out to contact the credit union to open and fund the account, just like a checking or savings account. Then, relax and watch your money grow!

In most cases, there will be a minimum balance requirement – often $500, $1,000 or more — and you can have multiple certificates. In fact, lots of people employ a strategy called a “certificate ladder” that involves opening multiple certificates, maturing in sequence, so they always have the option to either access a portion of their money or roll it into another certificate. Pretty clever, eh?


We’re here to help! Hit us up by phone, email or chat and we’ll walk you through the process of deciding which term certificate is right for you, and help you open and fund the account.


Must meet membership and account criteria. This information is provide for educational purposes only and is not intended to be financial advice. Insured by NCUA.

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