By Jamie Wagner, Ph.D.

What is a Certificate of Deposit (CD)?

I’m not talking about the latest Adele or Imagine Dragons album but a way to increase your wealth through saving in a certificate of deposit (CD) where you can actually earn some interest. Credit unions offer a similar product—a share certificate or a certificate. They are virtually the same product. Certificates provide a safe way for an individual or household to save money. They pose little risk as they are insured through the National Credit Union Administration (NCUA) up to $250,000 much like a CD or bank account is backed by the FDIC up to $250,000.

What’s the difference between a certificate and a savings account?

The biggest difference between a certificate and a savings account is interest. A certificate accrues interest, and the money in the certificate is fixed in the account for a given length of time. Generally speaking, savings accounts do not offer much interest, but they are flexible and allow you to access your money at any time. Note that the longer you are willing to let your money sit in a certificate (have a longer term), the higher your annual percentage yield (APY) will be and the more money you’ll earn on that certificate. You can look at the different lengths of time and the various APYs that Centris offers online.

How do you ladder a certificate?

Laddering is a unique technique that allows you to access the cash without incurring penalties from taking out the money before the maturation date. It also allows the option to keep reinvesting and therefore having the potential to earn more in interest especially if interest rates increase. To ladder follow these steps:

  • Split the total sum of money you were willing to invest into multiple certificates with different terms
  • As one certificate matures, reinvest that money to keep your ladder going and earn more interest, or
  • Use the cash as needed

For example, if you have $3,000 that you are willing to invest, instead of putting all $3,000 into one certificate, put $1,000 into certificates with 12-month terms, 24-month terms and 36-month terms. This would increase the amount of interest you could earn because the 36-month certificate earns more interest than the 12-month certificate, but you’d also have cash at the end of year if you needed it without a penalty.

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