In our last post, we discussed how you can start your financial journey by taking a closer look at your financial behavior and making sure it fits with your goals. Now that you’ve done the hard work of building strong savings and smart spending habits, and especially with today’s high interest rates, it’s a great time to start thinking about how you can put your nest egg to work for you.
If you’re interested in investing your money, but the thought of stocks or real estate sound like “too much too soon,” a term certificate might be a safe and straightforward way to get your feet wet in the world of investing. Here are a few reasons why a term certificate could be right for you, and some strategies that can help you use one to get the most out of your savings.
Where Should You Put That Nest Egg? Slow and Steady Can Win the Race
When you deposit your money into a term certificate account, you agree to keep it there without withdrawing any of it until the “maturity date” at the end of the agreed term. Financial institutions typically offer terms ranging from a few months to years.
While your money sits in the account, it accrues interest at a fixed rate, which is usually higher than a standard savings account. At the same time, the predictability and stability of term certificates mean that you won’t have to monitor markets or worry about losing your money due to market fluctuations like you would with riskier investments.
Additionally, at Self-Help and other credit unions, your funds will be covered up to $250,000 by the same NCUA federal insurance that covers your regular savings account. This means that your term certificate investment is safe in the event that your financial institution faces difficulties.
Find the Right Maturity Date For Your Goals
Once you thought about your goals for your term certificate, it’s time to match the maturity date with your plans so you can access your money when you’re ready to use it. For example, if you know you’d like to be able to purchase a home in five years, a 5-year term might make sense for you. If your goal is smaller, like a new car or an extended vacation, you might consider a term of a few months to a year, depending on the return you’d like to get.
As a bonus, longer terms typically come with higher interest rates. For example, if you’ve saved $3,000, and you plan to use the money for a down payment for a new car in two years, you could open a two-year term certificate with an interest rate of 4.60% APY*. By the end of the two-year term, your investment of $3,000 will have gained you $282 in interest.
Early Withdrawal Penalties: Stay Safe and Informed to Prepare for Emergencies
If you know you won’t need this money for a long time, a term certificate is a great option. However, if you think there’s a chance you’ll need to access the funds in your account, it’s important to understand that an early withdrawal penalty would likely reduce the returns you’d get from your investment. Save yourself future anxiety by learning about the penalties ahead of time.
Penalties can vary by financial institution, but often require you to pay a portion of the accrued interest – typically a number of days’ worth of interest—when you decide to withdraw early. The penalties typically also vary according to the maturity date of your certificate, so be sure to know as much as possible about the penalty policy before you open your account.
While you’ll maximize your returns by leaving the funds in your account untouched, it’s often hard to plan for the unexpected. Make sure you don’t invest money that you’re likely to need in the near future, and be aware of potential early withdrawal penalties.
Strategize to Get the Highest Returns and the Most Flexibility: Consider Laddering Your Term Certificates
Did you know that you can hold more than one term certificate at a time? Several accounts, some with shorter maturity dates – often as short as a few months – and some with maturity dates farther into the future means you’re more likely to be able to access at least some of your money in an emergency while maintaining the stable, long-term investment that you might want to meet larger goals.
As an additional benefit, laddering term certificates can also help you take advantage of any rise in interest rates that might occur. If your savings are substantial enough for you to open more than one account, this strategy can help you get a higher return while retaining some flexibility when you need it.
Consider a Self-Help Term Certificate to Grow Your Nest Egg and Support Strong Communities
Whichever option you choose, your funds will support our mission of creating economic opportunity for low-wealth families and communities while still providing a great return. Visit our website or your nearest branch and start building your rain-proof nest egg today!