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Pros and Cons of Certificate Accounts

access_time Posted on: September 5th, 2023

Certificate accounts offer a safe and dependable way to save money while earning interest over a fixed period. These investment accounts are an excellent refuge for funds that need a temporary home with the promise of a guaranteed return.

Read on to learn more about certificate account advantages and disadvantages and whether opening one is right for your portfolio.

What Is a Certificate Account?

A certificate account is an investment product whereby you deposit money in an account for a fixed period and earn interest. The rate is usually higher than what you’d make in a regular savings account. When the term ends, you get your initial deposit back along with the accumulated interest.

Is a certificate a good investment? If stability and predictable returns align with your objectives, it’s a worthy contender. However, there are a few downsides that should be carefully weighed before making a decision. 

Pros of Certificate Accounts

Belco Community Credit Union offers several attractive certificate accounts for those looking to secure and grow their savings. Take advantage of the following benefits:

Minimal Initial Investment

Belco makes it easy for you to get started with an initial deposit as low as $500. This relatively small amount makes it an approachable investment option for many savers.

Earn More Over Time

The longer you’re willing to leave your funds untouched, the higher the rewards. With terms ranging from 3 to 60 months, there’s flexibility in how long you commit and longer terms generally come with higher rates.

Maximize Earnings With Higher Balances

If you can invest substantially more, you’ll reap more benefits. With investment options of $10K, $50K, $75K the growth potential is significant.

Compound Dividends

Not only do you earn interest on the money you deposit, but you also earn additional interest on the interest you’ve already made (known as Annual Percentage Yield or APY), accelerating the growth of your savings.

Flexible Dividend Payout Options

With Belco, you have a choice in how you receive your monthly dividends. They can be added back to the certificate, paid to you by check, or posted to your savings or checking account.

Special Certificate Options

Belco offers unique certificates such as Bump Up Certificates, which allow for a rate increase at key points during your term. Additionally, the Add On Certificates will enable you to add funds to your certificate after your initial deposit, giving you more flexibility.

Federally Insured

Rest easy knowing that your investment is federally insured for up to $250,000 by the NCUA, offering an additional layer of security.

Automatic Renewal

There’s no need to keep a constant eye on maturity dates. Your account will automatically renew when your Certificate Account matures at the end of your term. However, you will receive a notice 30 days in advance if you prefer to withdraw funds and close out the account.

These features make Certificate Accounts with Belco an attractive and versatile option for those looking to grow their savings with minimal fuss and maximum security.

Cons of Certificate Accounts

While these investment accounts offer many benefits, it’s crucial to be mindful of their limitations and downsides. 

Early Withdrawal Penalties

If you need to withdraw your money before the end of the term, you’ll likely face a stiff penalty. This can sometimes eat into your interest earnings or even your principal.

Limited Accessibility

Your money is not as accessible in a Certificate Account as in a regular savings account because you have to wait until the term ends to access your funds without incurring a penalty.

Potential for Lower Returns

While the locked-in rate can be a pro, it can also be a con if interest rates rise significantly during your term. You could end up earning less than if you had chosen a different investment.

Types of Certificate Accounts

It’s essential to understand that there’s no one-size-fits-all option, but rather a diverse range of Certificate Accounts catering to different needs and preferences. Let’s explore the options that Belco has to offer.

Standard Certificate Accounts

These are the traditional type, where you deposit a lump sum for a fixed term at a fixed interest rate.

Bump Up Certificates

These ingenious certificates allow you to elevate your interest rate at predetermined intervals during the term. It’s like a safety net, ensuring you can still benefit if market rates climb after you locked in your initial rate.

Add On Certificates

These adaptable certificates allow you to contribute additional funds to your investment after the initial deposit. It’s an excellent way to capitalize on unexpected cash inflow and further amplify your savings without opening a new certificate with a separate term.

IRA Certificates

Specifically for Individual Retirement Accounts, IRA certificates can be a good option for retirement savings with tax advantages.

When to Consider Opening a Certificate Account

Opening a Certificate Account can be wise if you have extra funds you won’t need access to for a while. It’s also a good choice if you’re looking for a low-risk way to earn interest on your savings. However, as mentioned above, you should consider your liquidity needs and the interest rate environment before opening a certificate account. 

At Belco Community Credit Union, we offer several attractive certificate account options. Click below to learn how easy it is to open an account.

How to Open a Certificate Account in 6 Steps

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