What's a Certificate?

Certificates, also known as “certificates of deposit” or “share certificates,” are deposits with a built-in timeline. You can’t withdraw from certificates whenever you want (without incurring a penalty). Instead, you wait until they reach what’s known as a maturity date. The further away the maturity date, the longer the term length. And, the longer the term length, the higher the interest rate (generally).

The main features of a certificate include:

interest, helping your savings grow 

federal insurance, meaning you’ll never lose money you deposit*

timed deposits, encouraging you to save and not spend

Unique Features of Certificates

Certificates uniquely offer:

Maturity dates. Certificates require that money be deposited for a specific length of time. When this time is up, the certificate reaches “maturity.” Withdrawing before the maturity date could result in an early-withdrawal penalty, which generally means losing at least a portion of accrued interest.

Higher interest rates. You can receive a higher interest rate with a certificate than a standard savings or money market account. Typically, the larger the principal and the longer the term, the higher the interest rate.

Flexibility. Most financial institutions offer a variety of certificate term lengths, so you can use certificates for goals that are anywhere from a few months to a few years away.

When to Use a Certificate

Because certificates have maturity dates while standard savings accounts don’t, you should take this into account when deciding when to use one over the other. For example, a certificate would be ill-suited for an emergency fund because you wouldn’t be able to access your funds on demand without a penalty. However, you might use a certificate:

for goals with a specific end date (like a wedding or having a child)

when you’ve already financed an emergency fund and have additional money to save 

to store large amounts of money that could take advantage of the higher interest rates available on higher principals

when you need the stability and predictability that investments such as stocks can’t offer

*NCUA/FDIC insurance is up to $250,000 per account ownership category.

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