With timed payouts, federally insured certificates allow you to enjoy guaranteed returns and are virtually risk-free. But, if you’ve never bought a certificate before, there’s a little bit of a learning curve. Read on for best practices, strategies and information you should know before investing in certificates.
1. What is a Certificate?
A certificate is issued by a financial institution to a person depositing money for a specified length of time. A certificate comes with a fixed maturity date and a specified fixed-interest rate. Access to funds is restricted until the maturity date of the investment.
2. Terms to Know
Your initial deposit is the starting balance for your certificate. Each certificate comes with a term, which is the total number of months during which the certificate’s interest compounds and provides returns. Certificates are typically promoted with their annual percentage yield (APY1
). A certificate’s APY – its effective annual interest rate – takes into account the effects of intra-year compounding and differs from the annual percentage rate (APR).
3. Certificates Make More Money as Interest “Compounds”
Each month, the earnings from your certificate are reinvested rather than being paid out. These earnings are added to the principal amount, and each month accumulate interest. The interest is continually earned on the sum for the life of the certificate. Want to learn more about how much your certificate will earn? Visit our certificate calculator
page to add up your returns.
4. Certificate Buying Strategies
Where do certificates fit into your overall portfolio? It all depend on the time frame, risk tolerance and goals you have for savings. Certificates tend to be for investors who aren’t tied to keeping a portion of their portfolio in -cash, and want a safe place to invest funds to gain a guaranteed return. If you want more regular access to your money than the term offered by your certificate, “laddering” can help alleviate worry. A laddering strategy involves opening multiple certificates at one time, but with different maturity dates, giving you access to some of your money in a relatively short time period.
Laddering allows you to control the terms and maintain regular access to your money. By beginning to stagger certificate purchases by terms (five, three, and one year certificates) into a regular maturing cycle of available funds, you can create consistent access to maturing cash. Some investors also go the route of having high yield certificates mature every year. This strategy allows a high level of flexibility, peace of mind and helps reduce interest rate risk while earning an attractive return.
5. What If I Want to Withdraw Funds from My Certificate?
For all Truliant certificates, there is a penalty for early withdrawal. These penalties ensure that it is generally not in a holder’s best interest to withdraw the money before maturity unless there’s a serious need for the money.
Federally-insured certificates are a safe place to keep your money. It is guaranteed to be more valuable once it matures. How's that for peace of mind?
Visit our certifcate rates page
to learn more about Truliant certificates.Investing in a certificate with Truliant is easy and can be done in a number of ways. You can request an appointment with a Truliant specialist to open your certificate at any of our convenient locations
. Members can open a certificate online by signing in to Online Banking or by selecting Apply for Membership and Open Accounts for non-members at this page
. For more information, you can see our current rates
Federally insured by NCUA. (1) APY = Annual Percentage Yield.