Share certificates are having a moment. Long overlooked, this rock-solid investment choice has been attracting attention as higher interest rates have boosted returns. This blog will take a closer look at how certificates work, their many benefits, and why acting now to lock in current interest rates can yield benefits long into the future.
A share certificate is very similar to a certificate of deposit (CD) offered by many banks but is issued instead by a credit union. Essentially, when you purchase either a share certificate or CD, you agree to leave a required amount of money in an account for a fixed period.
In return, you earn interest (or dividends in the case of a share certificate) at a fixed rate payable on a predetermined maturity date. Both share certificates and CDs offer rates that are typically higher than regular savings accounts. What’s more, you have the predictability of knowing exactly how much your investment will earn and when it will be payable.
Interest rates on share certificates vary according to the term length, usually running from as short as three months to five years or more.
Share certificates have a minimum deposit starting at as little as $500, but higher for longer-term investments. Since they are fixed-term deposits, it is important to note that it is usually not possible to access your funds before the certificate matures—unless you pay a heavy penalty.
Share certificates offer many of the advantages of other fixed-term investments, such as private or government bonds, but with all the security of a regular savings account. These certificates are insured by the National Credit Union Administration (NCUA) for up to $250,000 per account. This is the same insurance the NCUA offers on checking, savings, and money market accounts.
Share certificates are an effective and secure way to save, but it’s important to understand what they are—and are not—designed to do. The following table illustrates some major advantages and disadvantages of share certificates.
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Perhaps unfairly, share certificates have a reputation as a rather staid and unimaginative investment choice. This could be because they offered relatively small returns during the long period of low interest rates and stock market outperformance in the U.S. that ended in 2022.
Higher interest rates and the failure of several medium-sized banks in the years since have demonstrated the value of share certificates, not only as a core part of any investment portfolio but also as an innovative way to encourage savings. Here are some smart ways you can put share certificates to work for you:
Share certificates can encourage saving for shorter-term goals like a vacation, a wedding, or even a household appliance. Rather than charging these expenses to a credit card that you would have to pay off, you could cash out your share certificate funds instead.
But to do so, you need to choose a share certificate that matches your savings timeline. At Foothill Credit Union, we offer certificates with generous rates from six months to five years on deposits of $2,000 or more.
Share certificates are also a great way to get serious about saving for major financial milestones like a down payment on a car, a major home renovation, or to kick-start saving towards retirement. But make sure you’re getting the best rate for your long-term savings. At Foothill Credit Union we offer certificate rates up to 89% more than local competitors.
Consider gifting a share certificate as a thoughtful way to mark a graduation, wedding, or birthday. With a minimum deposit of just $25, Foothill’s Youth Saver Certificate offers a way to teach young people about saving and investing. Plus the recipient will appreciate a certificate that’s locked in at today’s high rates!
Credit unions are community-based financial institutions so to become a member, you need to reside within a specific area or have a direct affiliation with it. In Foothill’s case, that includes employees of more than 260 companies in the greater San Gabriel Valley, as well as municipal employees.
As community-owned nonprofits, credit unions are focused on ensuring the long-term financial success of their members, rather than maximizing profits for shareholders. That means lower fees and better returns on investment. Recent NCUA figures show credit unions pay on average almost 0.9% more in dividends than banks on similar five-year certificate accounts.
For Foothill specifically, that means being able to offer generous returns such as a 4.74% annual percentage yield on our special six-month share certificate.
Ready to get started on your savings journey? Talk to Foothill Credit Union about your financial goals and money challenges. We offer:
Get in touch with our helpful, knowledgeable staff today, come into one of our branches, or click below to learn more.
