Many consumers who are looking to lock in a higher interest rate than that offered by a savings account, but who still want the security of a federally insured account, find Certificates to be attractive options. If you are one such consumer and have decided that a Certificate should be part of your financial portfolio, below are a few checklist items to help you know that you have chosen your Certificate(s) wisely.
You’ve Researched the Rates
Currently, average interest rates on the gamut of bank deposit products are not all that exciting. However, some banks and credit unions offer Certificate deals that compete well with similar market investments and present attractive opportunities. NASA FCU’s 49-month Certificate special is one example; it tops the national rate boards and comes with an interest rate that more than doubles the national average for Certificates with a similar term length. By researching rates and products like this from financial institutions across the country, you can be sure that you’re taking advantage of some of the top offerings of the day.
You’ve Calculated the Inflation Risk
A certificate is a commitment of funds with a financial institution for an agreed upon period of time, in exchange for a return. Many people value Certificates primarily for the security they provide surrounding return OF one’s capital more so than the return ON your capital. That said, the longer the period of time to which you commit your investment, the more relevant broad economic factors like inflation become. For example, if you were to invest in a standalone Certificate with a 5-year term, the risk of your earnings (and purchasing power) being diminished by rising inflation would be greater than it would be for a shorter term investment like a 1-year Certificate. Exactly predicting what the inflation rate will do over the life of a Certificate’s term is impossible, but you should still keep this important factor in mind when committing your funds.
You’ve Read the Fine Print
Finding a good Certificate investment is many times not as simple as finding the highest rate being offered. Financial institutions include terms of agreement with every product they offer, so you should be aware of the fine print to which you are contractually obliging yourself. Some Certificates have a “call” feature that gives the issuing bank or credit union the right to terminate the Certificate after a specified period of time. You should also investigate how and when the issuer is agreeing to return your funds with the interest earned. Knowing the contractual details of the Certificate before investing will help you avoid a surprise that you weren’t expecting.
You’ve Included it as a Part of a Broader Savings Plan
Lastly, you should consider how investing in a Certificate fits into your overall savings, or retirement, strategy. When are you going to need the funds that you are investing? Could you reach for higher yields by tying your money up for a longer term? Would building a Certificate ladder be advantageous? A Certificate provides savings discipline and can also be a great hedge for riskier investments you are making elsewhere in the market. Considering how a Certificate could fit into your broader financial plan could help you leverage its value and use it as a tool to help you reach your goals.
After you have decided that a Certificate is a financial product for you, completing the above diligence will help you select and use the Certificate wisely within the context of your overall financial plan.
Ready to open a Certificate? Still want to learn more?
If you’d like to discuss NASA FCU’s Certificate options with a Member Service Associate, call 301-249-1800, Ext 555.