As you work toward building a secure future for yourself and your family, you’ll want to put some money aside for emergencies as well as begin to save for the things you dream of — a vacation, a larger house, your children’s education, and your retirement. These are serious concerns, and it’s important to set goals and devise strategies to help you attain them.

Saving is a habit to cultivate; while making prudent investments can help you increase your available nest egg for major purchases, it is also wise to keep some funds in risk-free savings that you can access either immediately or on a scheduled basis. A Certificate of Deposit (CD) or Share Certificate Account is a great way to save. But there are still pros and cons.

Advantages of a Certificate of Deposit

• CDs issued by the credit union are safe, federally guaranteed by the full “faith and credit” of the U.S. government up to a limit of $250,000 per depositor.

• A Certificate is issued in a specific amount and for a specific term (length of time). Generally, it earns a higher interest rate than a simple savings account.

• The interest rate remains constant for the term of the CD, regardless of variations in market interest rates.

• With multiple CDs, you can control the availability of funds by selecting varying terms and staggering certificate maturity dates.

• Because the CD is locked in for a specific length of time, this helps save your money as you cannot easily access it.

Disadvantages of Certificate of Deposit

• In case of early withdrawal, you may pay the penalty. In most cases, you will forfeit some interest, but you might also lose a portion of principal. Read the fine print.

• Inflation: A long-term CD will tie up your money. If interest rates rise substantially in the short-term, you will not earn as much as the current rates.

How to Choose a CD

Even though they are safe and reliable, and pay a better return than other savings options, a Certificate of Deposit is not the perfect savings tool for everyone. CDs are well-suited for individuals and families who have other savings accounts or liquid assets available for emergencies.

A long-term CD is a good way to put money aside for a planned vacation, a college fund, or even for retirement, but you might not want to tie up substantial funds, especially when interest rates are still so low. Terms typically vary from as little as 90-days up to 5 years.

We’re Here to Help!

Be sure to weigh the benefits of higher interest rates against the loss of liquidity for the term of the CD. But also remember that Certificates of Deposit are generally your best risk-free investment.

If you have questions on which savings options are best for your specific financial needs, stop by your nearest branch or give us a call at 540-389-0244 (local) / 866-389-0244 (toll-free).

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.