Certificates vs. Savings Account: Which is the best option for you?

This content is sponsored by PenFed Credit Union, federally insured by NCUA.

Certificates and Savings Accounts are both options to save your money – but which is the better option for you? Knowing the differences between them can help make sure you make the best decision for your financial goals.

A Share Certificate – also known as “CD” or “Certificate” – is a type of savings account where, in exchange for locking up your money for a fixed period of time, your account will draw compound dividends at a fixed rate during the certificate’s term, said PenFed Credit Union’s Vice President of Deposits Thea Mason. Certificate terms at PenFed Credit Union are typically between 6 months to 7 years, and “by having the ability to commit to longer terms, we’re able sometimes to pay our members more dividends than we would on a savings accounts,” Mason added.

Usually the longer the term, the higher the yield, Mason said of Certificates.

With both Certificates and Savings Accounts, your principal is secure and they are both insured by NCUA, which is the credit union equivalent of the FDIC.

A Savings Account, on the other hand, is an account that earns dividends and where people can withdraw money as needed.

“It’s more flexible; you can take your money in and out whenever you want,” Mason said.

PenFed’s rates are subject to change, and the most recent ones can be found on its website.

Another option to consider would be one of PenFed’s High-yield Savings Account – also called the Premium Online Savings Account — which pays higher dividends rates than most savings accounts in the market.

“We try with that particular savings account to really offer as much value as we can to our member,” Mason said. “…Our Premium Online Savings Account is more unique in the market. Most savings accounts pay almost no dividends. Even when rates go very high, they tend to be very low to no dividends.”

So which option is the best for you?

“There are a couple of things to consider [when deciding]. If they have more long-term savings goals, they might find a Certificate to be more appropriate, because often they pay a higher rate of returns than you can earn on a savings account. So if you’re planning on doing something two, three, four years out, and you want to maximize your earnings, a Certificate would be a great vehicle for that,” Mason said. “I think that Savings Accounts, particularly a High-yield Savings Account, is a great vehicle for people who may not be able to fully commit to locking their money into an account for a term, but still want to get a return on their money, earn dividends on their money and preserve their flexibility.”

To open a Savings Account at PenFed Credit Union, all you have to do is become a member. You can do that with as little as $5 for your savings account. And once you’re a PenFed member, you can then open a Certificate, which requires a minimum of $1,000, Mason said.

There are no fees associated with PenFed’s Savings Accounts – either to open or cancel an account.

With Certificates, there are no fees to open it, however, there are penalties for cancelling. Those penalties, spelled out in the Certificate’s terms and conditions, depend on how long a term has been locked in.

“One thing to keep in mind is the penalty never eats into your principal,” Mason said. “So if you put $1,000 in the Certificate and you cancel, you’ll be able to get your $1,000 back — the penalty is taken out of any dividend you’d earned on the Certificate.”

Becoming a member of PenFed and optimizing your savings options is simple, Mason said. You can walk into a branch or go online to open an account, and from there you can become a member and opt for the Premium Online Savings Account and get a “relatively high rate on your money,” she said.

Online banking through PenFed makes opening these accounts and transferring money a breeze, Mason noted.

“Because we have such a robust digital presence, you can move your money electronically. So if you happen to have money at another credit union or bank and you want to invest that in a Certificate at PenFed, you can move that money electronically into the accounts you open at PenFed.”

The PenFed mobile banking experience allows members to easily manage and monitor their accounts and make mobile deposits.

“I think it’s a very convenient way for consumers to save money or earn a lot of dividends,” Mason said. “They don’t have to go to a physical branch to do it. We’re always there on their phone.”

Read more about Savings Accounts and Certificates on PenFed Credit Union’s website. PenFed Credit Union is federally insured by NCUA.

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