Skip to main content


Certificate Basics

Certificates are a way to grow interest on your money. It’s often a higher yielding savings vehicle as opposed to leaving your money in a basic savings account

Basics of Certificates
A Certificate is an interest-bearing account available at your bank or credit union.
Similar to a basic savings account, you earn interest on the money you deposit, but the funds are left for a term specific and untouched. 

Certificates are available in a variety of terms ranging from three months to five years. Longer-term Certificates usually pay more interest than shorter-term Certificates, but there are exceptions with special Certificate rates

If you remove funds from a Certificate before it matures, there’s an early withdrawal penalty.

When is a Certificate Beneficial?
Certificates work well when you want to increase your earnings but do not want to risk losing money in an unpredictable market. A certificate works well for both short and long-term goals.  

For example, you might have plans to buy a new home in two or three years, and you’re building up a down payment. You won’t need to spend the money in the immediate future, so securing it for a higher interest rate makes sense. The same goes for retirement. If you are nearing the end of your final working years, putting money into a Certificate can build additional funds for your golden years. 

How to Acquire Certificates
Find a Certificate term right for you, and your financial institution will help you to establish the account. When the Certificate matures, you’ll receive a notice explaining your options. In most cases, you can:

• Let the Certificate renew (it will renew at the interest rate available at the time and for the same length of time)
• Buy a different Certificate (switching from a six-month to a one-year Certificate, for example)
• Move the funds to a checking or savings account
• Withdraw the funds

It’s best to review your reasons for using a Certificate and make a decision about what happens with the money as opposed to allowing it to renew automatically. You may also consider selecting multiple Certificates with different terms where large sums of money are not tied up for long periods. 

Certificates are great options to maximize savings for your future endeavors. Whatever your plans may be, there are many terms and rates to choose from that will likely yield more than your standard savings account.   

Source: The Balance