The best way to save money is to put your money to work for you by socking it away in an account that will earn the most money possible while at the same time meeting your short- or long-term financial goals, or both.
But the choices can be daunting when it comes to savings products offered by financial institutions. There are savings accounts, money market accounts, mutual funds … the list goes on. And, since everyone’s financial situation is different, there is no one-size-fits-all answer.
Many experts recommend certificates because they are safe investments, have higher dividend yields than traditional savings account and they require little or no effort. Basically, you deposit your money and forget about it.
Certificates are offered by credit unions, and are similar to certificates of deposit, or CDs, offered by traditional banks. However, credit unions usually offer higher dividend rates, which makes certificates more attractive than CDs.
Certificates are offered for various lengths of time and initial minimum investments, and are insured just like any other savings account. Typically, the longer the term of the certificate the higher dividend it will yield. Navy Federal Credit Union, for example, offers certificates in terms ranging from three months up to seven years, with an initial investment as low as $5.
There are usually penalties and fees for early withdrawals, but those vary based on the type of certificate and the financial institution, so it’s important to read the fine print (as it is with any financial decision).
The idea of locking your money into an account for a certain amount of time can be a little scary, but the benefit is that you won’t be tempted to withdraw it on a whim. For this reason, though, certificates aren’t recommended for an emergency fund. Instead they are best used to save for a specific goal like a down payment on a house, a vacation, or even just to add to any savings you already have.
“This can be a good option for someone looking to park their cash for a short period of time and earn more than a general savings account,” Anjali Jariwala, a certified financial planner and certified public accountant at Fit Advisors, told Business Insider, adding that “there is no downside risk like you would experience with investing in the stock market.”
In addition to regular certificate accounts, most credit unions also offer various other options including IRA certificates to save toward retirement and education savings account certificates to help pay for college. Each of these has different advantages, rules and potential tax savings.
Establishing your financial goals will help determine which certificate – and what length of time – is right for you.
Navy Federal is federally insured by NCUA.