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Start Saving With Certificates In The New Year

What you'll learn: How to save with a certificate


As the New Year rolls around, why not make a New Year’s resolution to ramp up your savings? If your current savings plan doesn’t go further than tucking money into a savings account, you can do more with your money using certificates. Let’s walk through just what a certificate is and how you can use them.

What Is a Certificate?

Certificates are similar to savings accounts in that you deposit money and earn dividends. But unlike savings accounts, certificates don’t let you withdraw or deposit money once you’ve opened them. Instead, you choose a specific length of time (the certificate’s term) when you deposit your money. In return, you get higher interest rates than you would on a traditional savings account.

A certificate can be a commitment, because they have a minimum deposit amount and term length. PenFed’s Money Market Certificates require a $1,000 deposit, with terms ranging from 6 months to 7 years. PenFed also let you choose how your dividends are paid out each month:

  • Add dividends back to your certificate
  • Transfer dividends to your PenFed Regular Saving, Access America Checking, or Money Market Savings account
  • Or have your dividend mailed to you by check

For those wary of investing, certificates are a very safe way to grow your nest egg: they’re federally insured up to $250,000 by the FDIC (for banks) or the NCUA (for credit unions). That means you’re earning without risk.

Can You Afford to Have Your Money out of Reach?

If you’re seriously considering securing your money in certificates, first you need to consider how much you can afford. Earning a better interest rate probably isn’t a good idea if it risks your financial stability. Start by planning out your big expenses that you foresee might be coming up in the next year or so. You don’t need to go into a lot of detail, but if you’re planning on a vacation or remodeling the kitchen, you’ll want to be sure you have enough savings to handle those costs. Next take a look at your emergency fund. Do you have enough cash on hand to handle any unexpected expenses?

If you don’t have enough savings to comfortably cover upcoming expenses and leave a good cushion for emergencies, you may want to focus on building your savings in the coming year. Of course, that doesn’t mean you can’t start planning for 2018. Deciding how much you would like to have for a certificate can help you make a savings plan so you’ll have the cash to invest next year.

It’s Okay to Start Small

If you’re uncertain about having your money locked away in a certificate, you can still earn by starting small with the minimum deposit and term rate. While you won’t earn as much as you can with a big investment, you’re still earning: and you’ll get a sense of how well you can cope with part of your savings locked away. If the initial term doesn’t pose financial hardship, you can consider a longer term or a larger deposit next time.

No matter how much you deposit or how long you deposit it for, you’re earning more with a certificate than with most savings accounts.

Keep Growing With Certificate Ladders

Ready for something more advanced? Laddering is a strategy that balances having easy access to your money and getting better returns from longer investments. With a certificate ladder, you would invest in multiple certificates with different terms, allowing you to have some longer term investments without keeping all of your money tied up for the whole term.

For example, if you were interested in depositing $5,000 in a certificate, you might instead put $1,000 in five different certificates, with terms of 1, 2, 3, 4 and 5-years, respectively. That means every year for the next five years, you’ll have a certificate reaching maturity. After a year, your first certificate is accessible again if you need it—or you can put it in another five year certificate, adding a rung to your financial “ladder.” Decide on the amounts and durations that make the most sense for your financial plan and then set your certificates up to keep growing!

Ready to Start Saving?

You can kick start your savings today with a PenFed Money Market Certificate. With terms as short as six months and competitive dividend rates, you can make more from your savings without locking your money away for long.


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