Retirement planning is a long-term process that involves various investments, account-types, and strategies. For some, their golden years are decades away, which can result in putting their retirement savings on the back burner for now.
However, when it comes to retirement savings, your best friend is time. The more time you can save and allow your investments to compound, the greater your nest egg will become. One account type suitable for savers of all ages comes with an extraordinary perk – guaranteed returns. It’s a feature rarely found in investing, and it’s possible through Share Certificate Accounts.
Understanding Certificates
A share certificate account (also called a certificate of deposit) is a type of deposit account that earns substantially more than traditional savings accounts. You choose the term and yield that best fits your financial goals. Throughout the term, you cannot access these funds without incurring a penalty. However, your earnings are much greater than other options.
The terms typically range from a few months to several years. Longer-term certificates generally earn higher yields. For example, you might see Share Certificates offered in the following manner:
|
TERM |
YIELD (APY) |
|
6 months |
1.50% |
|
12 months |
2.00% |
|
24 months |
2.50% |
|
36 months |
3.25% |
| 48 months |
4.00% |
| 60 months |
5.00% |
Unlike stocks or mutual funds, certificates offer guaranteed returns – so you know you’ll profit from your investment. Additionally, certificates are not subject to market fluctuations, which makes them a stable and low-risk option. These qualities make certificates ideal for all investors, especially those building their retirement savings strategy.
As an added guarantee, share certificate accounts at the credit union are protected and federally insured by the National Credit Union Administration (NCUA) up to at least $250,000 – adding an extra layer of security to your investment.
Benefits of Share Certificates
Share certificate accounts offer several key advantages that set them apart from other saving and investment options.
- Flexible Terms:
Many investors appreciate the specificity certificates provide with having a set term for your savings to grow, as opposed to an indefinite amount of time. By selecting your term, you know exactly when your certificate will reach maturity, allowing for greater precision in your financial planning.
- Set Rates:
One of the most significant selling points of certificates is the stability they offer with set yields. When you open a certificate, you know exactly what interest rate you are earning throughout the life of the account and exactly how long the rate will last.
- Predictable Returns:
Another key advantage of certificates is their predictability. You’ll know precisely how much your investment will earn from day one. Receiving guaranteed returns eliminates the speculation and uncertainty associated with more unpredictable investment options, such as stocks.
- Safeguards Your Deposit:
With certificates, your funds are locked in for the entire investment term. If you choose to access the money early, you’ll generally incur a penalty. Not being able to touch the money forces you to leave it alone so your money can grow, helping you save even more.
The stability offered by certificates can be comforting for all savers, especially those nearing retirement. You can rest assured that a portion of your income generation is guaranteed, allowing you easier and more accurate planning for your financial future.
Incorporate Certificate Laddering
A wise way to amplify the benefits offered by certificates is to take part in a strategy known as “certificate laddering.” This strategy involves opening multiple certificate accounts, each with various terms and yields. This results in having multiple staggered maturity dates, so you are constantly turning over more money. As each certificate matures, you can withdraw or transfer funds or reinvest them in another certificate.
Example:
Let’s say you have $20,000 to invest. Rather than investing the total $20,000 into one certificate and locking up your funds for five years or more, you can break your investment up into multiple certificates at different terms and yields, such as:
- $4,000 in a 1-year certificate
- $4,000 in a 2-year certificate
- $4,000 in a 3-year certificate
- $4,000 in a 4-year certificate
- $4,000 in a 5-year certificate
The certificate laddering strategy allows you to strike a balance between the accessibility of your funds and the continued growth of your investments. Plus, if interest rates rise, you have the peace of mind that all your savings aren’t locked into one account at a lower rate. You have the freedom and flexibility to take advantage of higher yields and choose your own terms.
Balance Your Investments
Share certificate accounts should be just one component of your overall financial plan for retirement. Remember that saying about not putting all your eggs in one basket? That applies to your retirement savings, too!
Maintaining a well-balanced portfolio, including other investment vehicles like stocks, bonds, mutual funds, Individual Retirement Accounts (IRAs), and 401(k)s is essential. Each investment option has its own unique set of risks and advantages.
For example, stocks and mutual funds tend to offer higher growth potential, while IRAs and 401(k)s provide exclusive tax advantages. By utilizing a variety of investment vehicles, you can enjoy the best of all worlds and create a well-rounded retirement plan.
We’re Here to Help!
Incorporate share certificates into your retirement savings plan to ensure a stable financial future. By diversifying your investment strategy and combining certificates along with other investment vehicles, you can maximize the different benefits each option has to offer.
If you’d like to learn more about the different share certificate accounts and retirement solutions we offer, we’re ready to help. Please stop by any of our convenient branch locations or call 800-782-4899 to schedule an appointment today.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.