We all know that we should be saving money, but knowing where and how to save your money can be confusing. The two most common ways to save money are by using either a share certificate or a savings account. Understanding the differences between the two will help you decide which is the better option for you.
What is a Share Certificate?
A share certificate is a savings account with a fixed withdrawal date and interest rate. A fixed withdrawal rate means that once you put your money into the account, you cannot withdraw it for a certain period of time without paying a penalty. The trade-off is that you typically get a higher interest rate in a share certificate than you do in a standard savings account. The longer you agree to keep your money in a share certificate account, the higher the interest rate will be.
The withdrawal date associated with share certificates can range anywhere from a few days to 10 years. They are low-risk investments, especially because the NCUA insures them for up to $250,000.
What are the Benefits of a Savings Account?
A savings account allows you to deposit and withdraw your money relatively easily. Your deposited funds are typically available for withdrawal within a few days (if not the same day). There are usually no monthly fees associated with savings accounts, and you can link your paycheck to the account for automatic deposits. You will also accrue a small amount of interest on the money in the savings account.
Choosing a Share Certificate or a Savings Account: What’s the Difference?
The first major difference between a share certificate and a savings account is the accessibility of the money within the account. With a share certificate, you cannot withdraw your money at any time unless you’re willing to pay a penalty. You need to be able to keep the money in the account until the share certificate matures (meaning, you reach the withdrawal date). With a savings account, you can deposit and withdraw your money whenever you want.
The second major difference is the interest rate. Because your money is not easily accessible, share certificates typically have significantly higher interest rates than savings accounts do. The longer you are willing to commit your money to a share certificate, the higher your interest rate will be. While savings accounts will pay some interest, it is usually smaller.
To learn more about whether you should be using a share certificate or a savings account, please contact us today.