Most people have heard of certificates of deposit, or CDs, issued by banks. But fewer have heard of certificates, which are issued by credit unions. The fact is that these two savings vehicles are nearly identical. And for anyone wanting a low-risk investment, credit union certificates are definitely worth a second look.
Similarities and Differences
Certificates and CDs are both deposit-based investments that gain interest for a set amount of time. They both come in a wide range of term lengths — from six months to several years — during which time the money in them gains interest and is generally not available for additional deposits or withdrawals.
Outside of the name, the only other difference is the independent agency that insures these two products: In the case of bank-issued CDs, it’s the Federal Deposit Insurance Corporation (FDIC), while certificates are insured by the National Credit Union Administration (NCUA). In both cases, that federal insurance makes these products a very safe investment. Insured for at least $250,000, your initial investment is protected.
A Second Look at Certificates
One benefit of seeking a credit union certificate is that you can often get a better interest rate for the same term than those offered by banks. For example, PenFed’s certificate rates are often several times the national average. Members can easily purchase certificates online, which makes them convenient as well as low-risk. If you have CDs with multiple banks that are about to reach maturity, you might consider consolidating them into one certificate with a higher rate.
You can also create a certificate ladder, where you invest in multiple certificates with different terms. For example, instead of depositing $5,000 in one certificate, you might put $1,000 in five different certificates, with terms of 1, 2, 3, 4 and 5 years, respectively. So every year for the next five years, you’ll have a certificate reaching maturity. Investors often find that certificate ladders give them a greater amount of flexibility with their money while still allowing them to take advantage of the best certificate rates.
Start Saving Smarter Today
To get started with PenFed certificates, contact PenFed Credit Union at 1-800-247-5626 or visit PenFed.org.