Make Your Money Grow

If your hard-earned cash is collecting dust in a savings account, it may be time to look at some options for growing your money. One option is to invest in certificate shares (also known as a share certificate or certificate of deposit). Not only do certificate shares deter you from digging into your treasured savings, they actually allow you to make money off of those savings. Here’s how they work.   

WHAT IS A CERTIFICATE SHARE?

A certificate share is a short-term, low risk investment product – similar to a savings account – issued by a credit union such as AltaOne. Like a savings account, certificate shares are backed by the NCUA and typically have a fixed interest rate. Unlike a savings account, a certificate share is issued for a set period of time and has penalties for early withdrawal. 

Additionally, certificate shares offer a higher rate of return than the average savings account, which means you could be making roughly 0.10-1.5% more in interest from your principal amount. In order to take advantage of the returns from a certificate share, you must not withdraw the money before the date that it matures. For example, if you withdraw funds two months after opening a six-month certificate share, you will pay a penalty, which negates some of the interest you could be accumulating. 

LEAVE IT UNTIL YOU NEED IT

If you have several short-term financial goals, you’ll want to plan ahead. The key to using certificate shares effectively is to know when you will need the money you are investing. Do not invest in a 10-year certificate share if you know you will need the money in three years. For example: You have three short-term financial goals: $5,000 for a new automobile in one year, $1,000 toward a European vacation in three years, and $20,000 future down payment on a home in five years. With these three goals in mind, you could open three separate certificate share accounts: one with a maturity date of one year, another for three years, and a third for five years. This is a smart way to invest -- matching your maturity dates with your individual goals. Once you reach the maturity date, you can choose to withdraw or "ladder" your certificate shares.

LADDERING CERTIFICATE SHARES

If you have a decent amount saved, you should consider laddering your certificate shares.  This is a great way to grow your money with a bit more freedom, since you won’t have the total amount locked in for a long time. Given a balance of $20,000 for example, you could ladder five separate certificate shares with successive maturity dates at $4,000 each. This would look as follows:

• $4,000 for one-year
• $4,000 for two-years
• $4,000 for three-years
• $4,000 for four-years
• $4,000 for five-years

After the first year, you can roll (re-invest) the $4,000 -- plus interest -- into a five-year certificate share and do the same for each amount as it matures. Since credit unions offer different rates at different times, laddering allows you to take full advantage of the better interest rates given to longer-term certificate shares. 

FINAL NOTE

In general, certificate shares are a safe, effective way to earn a higher rate of return than the average savings account. Make sure you understand the terms and conditions of your certificate share and always try to choose a maturity date based on when you will actually need the funds to avoid any unnecessary fees.

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