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What is a Savings Certificate?

What is a Savings Certificate?1/10/2023

Our current financial landscape looks quite different than it did only a year or two ago: inflation levels are still high, while stocks are down 20% over the past year. If you keep all your savings in a traditional, lower-interest savings account, the value of your funds might not be able to keep abreast of inflation. And if you’re looking at investing your cash, you may be wary of putting money in the stock market or its related investment products.

two hands holding apples with text

During periods of high interest rates, many look to timed deposits for a safe, profitable investment strategy. If you’ve heard about the great current interest rates for certificates of deposit (CDs) offered by for-profit banks, know that you can take advantage of the same kind of timed deposits right here at your credit union, too.

Called savings certificates when offered by nonprofit, member-owned credit unions, this version of the classic ‘timed deposit’ product often even offers better interest rates than CDs—especially those found at larger banks. If you’re interested in learning more about savings certificates and how they can help you grow your nest egg, keep reading!

How does a Savings Certificate work?

A savings certificate is a type of high-yield savings account that allows you to set aside an amount of money for a set term, in exchange for interest rates that are often better than traditional savings or money market accounts. Like our regular savings accounts, savings certificates are federally insured by the National Credit Union Administration (NCUA).

Unlike a regular savings account where you maintain access to the funds in your account, during a savings certificate’s ‘term’ you won’t be able to deposit any more money, or withdraw your funds without a fee or penalty (for instance, losing the interest you’ve earned). This latter point means that these products aren’t great for emergency funds; instead, only invest money you know you won’t need to access during the certificate’s set term. Once the term is up, you can choose to allow the certificate to automatically renew for the same term length (at the current interest rate), start a new certificate with the funds, or cash it out altogether.

Savings certificates come in a variety of term lengths from a few months to years (at Palisades, our term lengths vary from 3 to 60 months). Typically, the longer the term you select, the better the interest rate will be. However, if you are worried about locking your savings away for too long, there are ways to utilize savings certificates while maintaining some accessibility (more on this below).

Feet with arrows pointing 3 different directions and some text

What is the difference between a CD a savings certificate? The major distinction is simple: CDs are offered by for-profit banks, while savings certificates, also known as ‘share certificates’, are available through credit unions. Many financial institutions even use the terms interchangeably!

Benefits of Savings Certificates

There are many reasons why individuals choose savings certificates, in addition to traditional savings accounts and other forms of investment. Here are a few of the major benefits:

  • Fixed interest rates. While other savings accounts and market investments can experience changes in interest rates and returns, once you open your savings certificate, the rate is locked in for the entire term.
  • Higher interest. Compared to typical savings and money market accounts, you can get higher yields on your savings certificate, especially when interest rates are up.
  • Guaranteed returns. Because your rate and term are fixed, your rate of return is guaranteed and predictable, as long as you don’t withdraw your funds early. Unlike market-based investments, you’ll never lose money with a savings certificate.
  • Protected by the NCUA. Not only are your returns guaranteed, but your funds are also federally-insured, up to $250,000, just like your credit union checking and savings accounts.
  • Use as collateral. Savings certificates are an asset, and as such can be pledged as collateral to secure loans.

How are certificate interest rates determined?

Like most interest rates, banks and credit unions base the interest on their timed deposits on the Effective Federal Funds Rate. As the Federal Reserve Bank of New York explains, this is the rate that the Federal Reserve sets to guide financial institutions in their lending to other financial institutions through the Federal Reserve—and this rate influences interest rates in all other areas of banking. When these interest rates rise, rates for savings certificates tend to go up as well. 

coin stacks increasing in height with arrow saying interest rate and some text.

During our current time of higher interest rates on loans, you’ll experience the flipside: higher interest rates on savings, especially savings certificates. Now is a great time to open one!

Savings Certificates vs. Bonds

Savings certificates may sound a lot like another timed investment product—government and private bonds—and you may wonder what sets them apart and which option makes the most sense for your investment needs. Let’s compare them to see which makes the most sense for you.


  • Predictable investment options: savings certificates and bonds both offer a set rate of return, unlike other savings accounts, mutual funds, and stocks, whose interest rates can vary.
  • Better interest rates: both tend to have higher interest rates than other traditional banking accounts like statement savings, checking, and money market.
  • Set terms: both kinds of investments require you to put your money upfront, for a set time. You won’t be able to access these funds until the certificate or bond comes to maturity.


  • Different sources: Savings certificates are offered through your financial institution. Bonds can come from the government (‘Treasury Bonds’) or from individual companies (‘Corporate Bonds’).
  • Different interest rates: When interest rates are high, savings certificates tend to pay better than bonds. When interest rates are low, bonds tend to pay higher than certificates.
  • Not all bonds are guaranteed: While government bonds and savings certificates both offer guarantees and/or insurance through the federal government, corporate bonds do not. Riskier companies can offer bonds with a higher interest rate while more stable companies may have bonds with lower rates. If a company goes bankrupt before your bond reaches maturity, you may be at a loss if they do not have enough assets to cover their obligations.

Both bonds and savings certificates can be a great option for you as part of a general investment portfolio because they tend to offer less risk (depending on the bond) and a more predictable rate of return. Because neither option is great if your financial situation requires your assets to be more liquid, be sure to avoid putting all your savings into a bond or savings certificate.

When should I invest in a Savings Certificate?

Implementing a savings strategy that incorporates higher-interest, stable investments like savings certificates is always a great idea. But there are certain times when certificates can pay off the most. Consider starting a savings certificate in the follow circumstances:

  • Interest rates are high. Because savings certificates are tied to market rates, the higher the prevalent interest rates are, the more you will earn.
  • Stock market yields are low or unpredictable. When we experience a bull market or a period of stock market volatility, it may make more sense to invest in an insured investment product with a guaranteed rate of return.
  • You won’t need access to the funds. If you have enough liquid assets to keep you afloat in case of an emergency or unexpected financial need, setting aside extra funds in a timed deposit can have great payoffs.
  • You have a long-term savings goal. Looking to buy a house in a year? Saving for educational expenses? Just looking to grow your nest egg? Savings certificates can be great tools for mid and longer-term goals because they not only will offer better returns than other accounts, but because you won’t be able to dip into the funds early, they can prevent you from using the funds for other purposes, helping you stick to your goal. And the longer the term, the better the interest rate!

Certificate Laddering

While savings certificates can be a great investment choice, many individuals are concerned about locking away their money for such a long time—especially since the best interest rates may require longer terms. However, there is a specific investment strategy that can allow you to take advantage of those higher interest rates, while offering you access to your funds at regularly-set intervals. This technique is called ‘laddering’.

Three ladders different heights and some text

So how does laddering work? Simply put, you don’t put all your money into one certificate, but rather several certificates that mature at ever-increasing lengths of time. This means that you’ll have individual certificates maturing at regular intervals through the life of your ladder. The longer certificate lengths allow you to benefit from high interest rates, while the shorter lengths keep your funds more accessible. Let’s look at an example:

You have $5,000 to invest in savings certificates, but in the off chance you will need some of that money sooner or another investment opportunity comes along, you are wary about putting it in a five-year certificate. To give yourself yearly access to those funds and to minimize penalties should you have to break a certificate early, you decide to make a ladder of 5 certificates:

  • Certificate #1: 1 year, $1,000, lowest interest rate
  • Certificate #2: 2 years, $1,000, middle-range interest rate
  • Certificate #3: 3 years, $1,000, middle-range interest rate
  • Certificate #4: 4 years, $1,000, higher interest rate
  • Certificate #5: 5 years, $1,000, highest interest rate

When certificate #1 comes due in a year, you can choose to withdraw those funds if you need them, or create a new, five-year certificate with higher interest rates. Every year thereafter a certificate will come due, and every year you can decide what you would like to do with those funds. And the best part is that you will always have penalty-free access to some of your money once every year. Using a CD ladder calculator can show you just how much more you can save with this technique rather than putting all your funds in a one-year CD and allowing it to renew annually.

Open a Savings Certificate with Palisades

At Palisades Federal Credit Union, we offer a wide range of savings certificates to meet a variety of investment needs. With some of the best savings certificate rates in Rockland County and Bergen County, minimum deposits of only $500, and terms from 3 to 60 months, we’re sure to have a certificate with terms that are right for you.

How do you get started? It’s easy! Apply online on our Certificates page or stop by a local branch location in Nanuet, Orangeburg, or New City to open a savings certificate or set up a certificate ladder, and take advantage of today’s great interest rates!


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