Certificate Accounts: A Savings Tool to Help Your Money Grow

While there’s plenty of saving options to help you get the most of your hard-earned dollars, if you’re looking to earn more than you would by simply holding your money in a regular savings account, a certificate account also known as a certificate of deposit (CD) could be a better option for your money. 

A certificate account or certificate of deposit gives you the opportunity to earn more with a higher fixed interest rate in exchange for keeping your money locked in an account for a certain amount of time, also known as the term. Terms usually range from six months to five years. Once the certificate account matures, you’ll receive your principal balance (what you initially deposited) plus any interest accrued. You then have the option to cash out or reinvest your money into another certificate account.

Unlike savings accounts, you cannot make further deposits into the account or withdrawal before the end of the term. 

Certificate accounts at credit unions are insured by the National Credit Union Administration (NCUA) so they can be considered a relatively low-risk savings option. Certificate accounts carry minimum balance requirements but you can start saving with as little as $1,000. 

The interest rate you receive usually depends on two factors: the term and the amount of money you're depositing. Usually, the longer the term and the more money that’s invested, the higher the interest rate. The interest on a certificate account at Hughes is compounded daily and credited each month. Check out the Hughes financial calculator to get a better picture as to what your investment will look like in the future.

The promise of a better interest rate in exchange for securing your money for a certain amount of time is one that will end up costing you if you’re unable to keep that promise. If you happen to need access to your money before the withdrawal date, you’ll face some heavy penalties and fees.

Before deciding on a certificate account, it’s important to assess your financial situation, goals and future needs. If you’re looking to keep savings secure for a few years with no intention of spending it, then a certificate account could be a good option. If you're just building a savings account, then it might be a good idea to stick to a regular savings account. 

Having an emergency savings account is always a good idea when opening a certificate account. In the event you happen to need access to funds, you won’t have to dip into your certificate account and face penalty fees that will derail your savings plan.