Are Share Certificates Worth It?
A share certificate is a great way to earn interest on your money. Share certificates usually have higher interest rates than other savings options, and it’s quick and easy to get started. But before you open one, it’s important to understand how they work to help you determine whether it’s a good investment option for your needs.
WHAT IS A SHARE CERTIFICATE?
A share certificate is a type of investment where you deposit money for a specific term and earn interest. Share certificates have fixed interest rates, and the term can be from 3-60 months.
They are different from savings accounts in one important way. With a savings account, you can make withdrawals anytime you like. With a share certificate, however, you will be assessed an early withdrawal penalty if you withdraw money before the end of the term (the maturity date).
Share certificates also offer the benefits that come with credit union membership. Because credit unions are nonprofit organizations, they also typically have lower fees and better rates than banks.
WHAT ARE THE BENEFITS OF SHARE CERTIFICATES?
There are several important reasons to consider share certificates. They are safe, offer guaranteed returns, and are ideal for long-term savings.
Safe Investments
When you open a share certificate through a bank, you don’t have to worry about losing your principal. If you have a share certificate with a credit union, your money is backed by the National Credit Union Administration (NCUA) for up to $250,000.
Guaranteed Returns
Share certificates have fixed interest rates, which means you never have to worry about a market downturn slowing the growth of your account. Your return is guaranteed and you can determine how much interest you’ll earn before you invest your money.
Higher Interest Rates than Other Investments
Share certificates usually have higher interest rates than savings accounts and money market accounts. This makes them a great way to save for something you need or want. You could use a share certificate to help save for a down payment on a home, for example. It could also be a great way to save for a new car, college tuition, appliances, or something else you need.
No Monthly Maintenance Fees
Depending on the financial institution you bank with, you may be charged a monthly maintenance fee for a savings account or money market account. Fees mean you earn less money in interest each month, which can significantly slow the growth of your account.
Share certificates don’t have any fees to worry about. You get to keep all of the interest you earn.
WHAT ARE THE DRAWBACKS OF SHARE CERTIFICATES?
Before you open a share certificate, it’s important to understand the drawbacks. Depending on your investment goals, the negatives may outweigh the positives.
Early Withdrawal Fees
Unlike savings accounts and money market accounts where you can periodically make withdrawals, the money you deposit in a share certificate remains in the account until the maturity date. It is possible to withdraw money early, but you will be assessed an early withdrawal fee for doing so.
Interest Rates Could Increase
Because share certificates have fixed interest rates, you could potentially miss out on earning more interest if rates increase after you open an account. Future interest rates are unpredictable. This could work to your advantage, however, if rates go down.
WHY SHOULD YOU OPEN A SHARE CERTIFICATE WITH A CREDIT UNION?
First, credit unions are known for their excellent customer service. Because their members are the owners, credit unions focus on providing the best service possible. Credit unions are also nonprofit organizations, which means they usually offer lower fees and higher interest rates than banks.
Credit unions also offer many of the same services as banks. In addition to offering share certificates, they also offer mortgages and other loans, retirement investment accounts, checking, and credit cards, to name a few.
As previously mentioned, your money is also insured for up to $250,000 with a credit union by the National Credit Union Administration (NCUA).
WHEN ARE SHARE CERTIFICATES A GOOD INVESTMENT OPTION?
A share certificate may be a good option when you’re looking for an investment that offers a great interest rate and you don’t foresee a need to withdraw your money before the maturity date.
Investing in a share certificate is also a good option when you want a safe investment. Although some stocks and exchange-traded funds (ETFs) may offer a higher return, you could also lose your investment if there’s an unexpected downturn in the market. With a share certificate, your investment is backed by the government, and your return is guaranteed.
If you’re saving for something like a down payment on a home, you could also keep your money in a share certificate to earn interest while you’re working towards your savings goal. Share certificates are ideal for long-term savings, but short-term maturity dates of as little as three months may also be available.
SHARE CERTIFICATES WITH GHS FEDERAL CREDIT UNION
If you’re looking for a safe investment with a guaranteed return, GHS Federal Credit Union offers share certificates with competitive interest rates and flexible terms. Our share certificates can also be set to automatically renew when they mature so you can continue earning. With locations in both Binghamton and Norwich, getting started is quick and easy.
Click on the following link to learn more about our share certificates.