The Update

What is a Share Certificate?

I’m looking for a long-term savings option and I’m considering a Share Certificate.

What Do I need to Know About Share Certificate Before I Decide to Open One?

A: When it comes to saving money, most people go right to traditional savings accounts. But if you could earn more interest while still keeping your money safe, wouldn’t you do it? That’s where Share Certificate come in. Share Certificate, also known as share certificates of deposit, are a low-risk, high-reward option for those looking to grow their savings without taking on the risks typically associated with investing.

Let’s take a closer look at Share Certificate and how they work.

What is a Share Certificate?

A Share Certificate is an account offered by financial institutions that locks money in for a fixed period of time in exchange for a guaranteed interest rate. Unlike a traditional savings account, where the holder can withdraw money anytime, a Share Certificate requires the owner to leave their funds untouched for a set term, typically ranging from a few months to several years. Once the term ends (known as the maturity date), you get your initial deposit back along with the interest you’ve earned.

Why Choose a Share Certificate over a Savings Account?

Both Share Certificates and savings accounts allow you to earn interest on your money, but there are important distinctions between the two. Here are some key reasons you might choose a Share Certificate over a traditional savings account:

• Higher interest rates than regular savings accounts.
• Predictable growth throughout the term.
• No temptation to spend while money is locked in.

Why are Share Certificates Considered a Safer Investment?

Share Certificates are one of the safest investment options available to the savvy saver. Here’s why.

• Insurance. Share Certificates issued by banks are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor per bank, and Share Certificates issued by credit unions are insured by the National Credit Union Administration (NCUA) for the same amount. This means that, even if the bank or credit union fails, your money is protected.
• No market risk. Unlike stocks or mutual funds, Share Certificates are not subject to market fluctuations.

Why are There Penalties for Withdrawing Funds Early?

Banks and credit unions usually impose early withdrawal penalties to discourage people from breaking their commitment by withdrawing funds before maturity. These penalties serve two purposes:

1. They help financial institutions manage their funds effectively. Since banks and credit unions use Share Certificate deposits for loans and investments, unexpected withdrawals can disrupt their financial planning.
2. They encourage disciplined saving. The penalty ensures that people only invest money in a Share Certificate if they’re truly committed to leaving it untouched.

Factors to Consider Before Opening a Share Certificate

Before you commit to a Share Certificate, here are a few important factors to keep in mind:

• Interest rates. It’s important to compare rates from different banks and credit unions to ensure you’re getting the best return.
• Term length. Choose a term that aligns with your financial goals.
• Early withdrawal penalties. Understand the penalty structure in case you need to access your money before the maturity date.
• Share Certificate laddering strategy. If you want to maximize returns while maintaining flexibility, consider a Share Certificate laddering strategy, which involves investing in multiple Share Certificates with staggered maturity dates to access funds at regular intervals.
• Inflation risk. If inflation rises faster than your Share Certificate’s interest rate, your purchasing power may decrease. Consider this before locking in a long-term Share Certificate at a lower rate.

Is a Share Certificate Right for You?

A Share Certificate can be the right choice for people who want a safe and predictable way to grow their savings. It can be ideal for:

• People who don’t need immediate access to their money.
• Individuals who want a higher interest rate than a savings account offers.
• Investors looking for a risk-free place to store funds.

If you need liquidity and easy access to your money, a savings account or a money market account may be a better fit.

RGCU Share Certificates

If you're interested in an RGCU Share Certificate, stop by one of our branches to learn more. We are here to answer any questions you have, and help you understand the financial options available as a member of Rio Grande Credit Union.