How to choose your share certificate term

Updated March 22, 2024  |   Published January 26, 2023

What is a share certificate?

A share certificate is a type of savings account offered by credit unions. These certificates have higher Annual Percentage Yields (APY*) than a typical savings account because you are locking up your money for a specific term. It is a similar product to a certificate of deposit or “CD” offered by banks. Choosing the right term for your share certificate may seem like a daunting task as there are many different options. Whichever you choose, you won’t be able to touch your money until the term is up or you face withdrawal penalties. Different terms also have different APYs, so you may need to make predictions about how rates will change in the future in order to determine the best option for you.


Things to consider when choosing your share certificate term


Return on investment

The shortest share certificate terms typically have the lowest yield and the longest terms have the highest yield. The longer terms also have higher minimum deposit requirements because of this. So think about how much money you are willing to put into your share certificate. $5,000 in a short term certificate with a low rate may not get you much in return, but $25,000 in a short term certificate could benefit you with higher yield and better flexibility when it comes to withdrawing.


Early withdrawal penalties

The longer the term, the more dividends you’ll earn, but you’ll also have larger withdrawal penalties. At Webster First, terms of one year or less have an early withdrawal penalty of one month’s dividends, while any terms longer than one year have an early withdrawal penalty of three months’ dividends. Consider the rate environment and what your future finances will look like. Is there any reason you may end up paying a penalty? Would it be worth it to you?


How long can your money be inaccessible?

If the money you invest in a share certificate was already sitting in a low yield savings account untouched, then you’ll probably have no problem locking it away for a while. But if you’re someone who is constantly transferring funds between your savings and checking accounts, you may want to consider a shorter term, or consider putting less away. Webster First has terms as short as 3 months, and as long as 60 months (5 years).


Certificate “laddering” strategy

Certificate “laddering” is a term used for the investment strategy of splitting up your money into multiple different share certificates for multiple different terms. For example: instead of depositing $10,000 in one 5-year certificate, you split it up into five different certificates with $2000 each – a 1-year, 2-year, 3-year, 4-year, and 5-year. When the 1-year matures, you invest it into a new 5-year certificate, and when the 2-year matures, you do the same thing. Continue every year that a certificate matures. This way you have one maturing at the end of each year. Eventually, they will all become 5-year certificates with one still maturing at the end of each 1-year period. You will be able to take advantage of the highest APY, while still having the opportunity to take some money back each year if you ever needed to.


With all of this taken into consideration, there are still multiple things specific to your individual financial situation to consider before you choose your term. Consider how much money you have to invest, how the rate market is moving, or what you’re saving for. If you’re ready, open a share certificate now.

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*APY = Annual Percentage Yield. Penalty may be imposed for early withdrawal. Compounds daily.