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Build Your Savings with Certificates

By: American Heritage12.07.23

Want your savings to earn more than they would in a traditional savings account, without taking on risk? Then you may want to look into opening a certificate. If you do your banking at a credit union, you may also know them as share certificates, or as certificates of deposit (CDs) at a bank.

With a certificate, you’re saving a sum of money for a certain amount of time—typically three months to five years—at a fixed interest rate. Typically, the longer the term, the higher the interest rate your financial institution will offer. You can withdraw the money when your certificate matures or roll it into a new certificate. It’s a good way to save for longer-term goals, like buying a car or putting a down payment on a house, if you don’t need immediate access to that money.


What Are the Benefits of a Certificate?

A certificate is a good way to save for long-term goals when you don’t need immediate access to your cash.

As previously mentioned, certificates have fixed interest rates, which means your rate is locked in for the entire term, even if the market goes haywire. Those interest rates are higher than you’ll find with other types of accounts, like traditional savings or money market accounts. Additional benefits include:

  1. The ability to estimate your total earned interest. With a certificate, you know the rate and the term upfront, so you can easily calculate how much you’ll earn.
  2. Security for your savings. Certificates purchased through a federally insured financial institution are insured up to $250,000 per depositor.
  3. Knowledge of when you can withdraw what you’ve saved. You’ll know when your certificate is set to mature, which is the date you can withdraw your deposit plus earned interest.

Remember, a certificate probably isn’t the right choice if you need immediate access to your cash. In most cases, you will pay a fee if you withdraw funds before your certificate matures.


What Types of Certificates Are Available?

There are several types of certificates, each having slightly different features. American Heritage offers the following types of certificates:

  1. Traditional: Also known as a standard certificate, this type of certificate has a fixed interest rate, a fixed term, federal deposit insurance, a minimum balance requirement, and an early withdrawal penalty.
  2. Jumbo: These certificates have a large minimum deposit requirement, typically at least $100,000, though some exceptions exist. They feature slightly higher rates than traditional certificates, on average, and similar maturity periods to traditional certificates. These certificates may only be offered for a limited time promotion.
  3. Bump-Up: Again, this has all the elements of a traditional certificate but adds an ability to increase the certificate’s interest rate at least once before it matures, potentially allowing you to capitalize on potentially rising rates.
  4. IRA: This type of certificate is held within an individual retirement account, so it may be accompanied by other certificates, stocks, bonds, and other investments. These certificates typically make up the cash portion of a retirement portfolio, along with money market deposit accounts, and they could come with two penalties for early withdrawal, one for the certificate and one for the IRA.

Here are additional certificate types for you to consider:

  1. High-Yield: This type is more frequently offered by online financial institutions. It has all the features of a standard certificate, plus higher interest rates and more earning potential.
  2. Step-Up: This type of certificate still lets you lock in a set interest rate for a certain number of months, but also offers interest rate increases of a predetermined amount on set dates before the certificate matures, translating to an opportunity to earn more over the life of the certificate.
  3. Add-On: What makes this type different from a traditional certificate is the ability to add to your savings before the certificate matures and the opportunity to earn more interest because your base deposit increases.
  4. No-Penalty: This certificate is similar to a traditional savings account, though your interest rate will not change over time. With this type, early withdrawals can be made without penalty, rates tend to be lower than with high-yield certificates, and partial withdrawals are typically not permitted.
  5. Zero-Coupon: With a zero-coupon certificate, you don’t receive interest on your deposit until the certificate reaches maturity, which differs from a traditional certificate. Instead, you can purchase a certificate for less than its face value, depositing $8,000 for a certificate worth $10,000, for example. You don’t receive interest payments on that deposit until it matures, say after five years. Then, at the end of the five years, you can withdraw the full $10,000, meaning you earned $400 per year in interest income. You just don’t see those earnings until the end.
  6. Callable: A callable certificate is like a traditional certificate in that you earn a set interest rate on your initial deposit. The differences are that it typically features higher interest rates than a traditional certificate so that you could earn more, and the financial institution that issued the certificate can call it back before the maturity date, typically if interest rates drop suddenly. The “non-call” period is usually set so the issuer can’t call it back too early. So, while you still receive the interest plus your initial deposit, if the certificate is called back early, you wouldn’t earn all the potential interest you could have if it had reached maturity.
  7. Brokered: While a brokered certificate is still issued by a bank or credit union, you buy it through an investment firm, sometimes known as a brokerage. They are federally insured and have a fixed interest rate, but there are some differences between these and traditional certificates, including that if you want to withdraw your funds early, you won’t just pay a fee, you’d have to sell the brokered certificate in an online marketplace to access your funds. Because of this, you may end up with less value than what you originally deposited.
  8. Foreign Currency: This complex certificate ties the value of your money to that of foreign currencies. It’s a riskier certificate because your earned interest is based on one currency or a selection of currencies that frequently fluctuate, and your money may lose value after going through exchange rate conversion back to U.S. dollars.


What Is Certificate Laddering?

With certificate laddering, you divide up your savings and buy separate certificates with different maturity dates. For example, instead of waiting five years for one certificate to mature, you would have a certificate maturing every few months or every year. When one certificate matures, you can decide if you want to buy another certificate at the same or longer term, use the money for something else, or both. Certificate laddering allows you to earn more money in interest than you would with a savings account and still have access to some of your money every so often.


How to Open a Certificate

Feeling ready to open a certificate? No matter how much you plan to save, the process is simple. Just follow these steps:

  1. Choose your financial institution. To keep your money secure, make sure to choose a financial institution that is insured by the federal government, whether the NCUA or FDIC.
  2. Select the type of certificate that makes sense for you. Consider your savings goals, how much you want to deposit, and how much risk you are willing to take.
  3. Decide on the term. Typically, the longer the term, the higher the interest rate a certificate will pay.
  4. Consider how you want interest to be paid. Interest may be paid monthly or annually, and you may have the opportunity to reinvest it.
  5. Think about how you will deposit. You could mail a check, transfer funds online, or even make a phone transfer.
  6. Read the disclosure statement. The disclosure statement contains important information about your interest rate, whether it is fixed or variable, and exactly when and how the financial institution will pay interest to you. It also includes the certificate’s maturity date and any penalties that apply for early withdrawals.
  7. Open your account. Once you’ve chosen your financial institution and certificate, you can open your account. In addition to a deposit, you’ll need to provide your name, address, contact information, and Social Security number.

If you have an American Heritage Online Teller login, you can open a new certificate by logging in and clicking Open Shares in the navigation. From there, click Open Certificate to get started.


Have Questions About Certificates?

There are plenty of things to consider when deciding if opening a certificate is the right choice for you. If you have questions about the types of certificates available, which one is right for you, and how you can benefit from moving your savings into a certificate, reach out to one of our representatives.



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