This content is sponsored by PenFed Credit Union, federally insured by NCUA.
With today’s high Annual Percentage Yields, it could be beneficial to maximize your funds through investing. However, in the current economy, you may want a low-risk investment with stable and predictable returns.
A Certificate is a conservative investment that can help you reach your savings goals and move you closer to building wealth.
Certificates are deposits that allow you to choose the length of your term (usually several months to a few years) and make a required initial deposit at a locked-in rate. Your money then starts to earn dividends throughout the term, according to the experts at PenFed Credit Union.
Certificates are best used for money you won’t need before the term is up, according to Bankrate.com.
“In exchange for this guaranteed yield, you agree to lock up your money until the CD’s term expires,” Bankrate reads. “Accessing the money prior to that results in an early withdrawal penalty.”
When deciding what term is right for you, consider when you will need access to the money.
“Since there’s generally a penalty for making an early withdrawal from a CD, it’s also a good place to store money you want to keep from touching for a specific amount of time,” Bankrate states.
When the term ends, the Certificate matures, and you can withdraw or renew it. Although the gap is not as wide as it once was, Bankrate says Certificates can sometimes offer a better APY than traditional savings accounts.
Brad Stark, a certified financial planner, tells Fortune.com that you should also consider the interest rate in relation to the timeframe of the Certificate.
“As you commit your money to longer periods of time to lock it up, you should be compensated with higher interest,” Stark says.
PenFed Credit Union offers several Certificate options, one being PenFed’s Money Market Certificates. With this option you can expect guaranteed returns and no surprises by locking in a great rate. Available terms range from six months to 7 years, and certificates must be opened with a minimum balance of $1,000.
If you want to renew your Money Market Certificate, you can choose a new term at any time prior to maturity.
Another option is PenFed’s IRA Certificates, in which you can start saving with balances as low as $1,000. Dividends are compounded daily and paid monthly for maximum returns, and you won’t lose any of the principal if you need to withdraw the money sooner than expected.
PenFed’s rates are subject to change, and the most recent ones can be found on its website.
If you’re someone who wants long-term growth and has decades left until retirement, Certificates may not be right for you. Nick Covyeau, a certified financial planner at Swell Financial, tells Market Watch there are other options for these people with these circumstances.
“If you’re willing to lock up money for many years at a time, or if you know that you won’t need the money for the foreseeable future, you can often earn higher returns with other forms of investment,” he says.
However, if you sold a property or a business and you want to reserve cash to pay taxes on that sale nine months from now, Gary Zimmerman, chief executive officer of MaxMyInterest, says a short-term Certificate may be right for you.
One financial strategy often leveraged by Certificate investors is the concept of “laddering.” Certificate laddering involves distributing your funds among multiple certificates with different maturity dates.
By creating a Certificate ladder you can enjoy the higher interest rates of longer-term Certificates while still maintaining some level of liquidity.
“Laddering CDs can reduce risk and allow an investor to have access to cash at regular intervals while still taking advantage of higher interest rates,” Bankrate reads.
Overall, Certificates are generally safe and secure investments that can assist you in reaching your savings goals, particularly when tailored to your individual financial situation. They can be even more rewarding when you open them at the right time.
“In a high-rate environment, the reward for saving your money in a CD is even greater, and you’re guaranteed to earn that high rate for the duration of the term,” Bankrate reads.
Read more about Certificates on PenFed Credit Union’s website. PenFed Credit Union is federally insured by NCUA.
