How do Term Share Certificates Work?
A Term Share Certificate allows you to earn high interest rates by agreeing to leave money in a credit union for a specified amount of time.
Term Share Certificates are the credit union equivalent of a bank's Certificate of Deposit, or CD. Like CDs, these certificates require you to invest funds for a specific period of time, while you earn higher interest in the account. The length of a certificate can vary, but anywhere between 90 days and five years is common. LA Financial has several term lengths to choose from, which helps the depositor, depending on how liquid they need their assets to be. If you withdraw your money before the term ends, you'll pay a penalty fee.
The minimum deposit for a Term Share Certificate depends on the credit union - See the current minimum deposits for our Term Share Certificate and 12-Month Growth Certificate here. In investment terms:
- Principal: the money you initially deposit into the account
- Term: The length of time the funds are required to be invested at the credit union
- Date of Maturity: The date that the depositor is finally allowed to withdraw your money, which includes your principal and earned interest, without penalty
The interest rate and annual percentage yield (described below) determine how much you earn on a certificate. Generally, a longer term gets a higher rate. Rates can also vary a lot from year to year.
You can get certificates through almost any credit union or bank. Many people use a credit union for convenience. In a credit union belonging to the National Credit Union Administration, your investment receives federal insurance protection up to $250,000, similar to Federal Deposit Insurance Corporation coverage for banks.
What Happens at Maturity
When a certificate matures, you generally have a time limit to decide what to do with the money. If you wait too long, the bank usually rolls over, or reinvests, your money in another certificate for the same term at the current rate.
If you would like to cash the certificate, you can ask to sweep or move the money into your accounts or paid to you in the form of a check.
You can also buy a certificate through a stockbroker, but you will likely have to pay some sort of fee or commission. With a brokered certificate, you can usually sell it without penalty if you need to get your money out early. But you may have to sell it for less than the principal you invested. Be sure that the brokered certificate is insured before investing.
Be very cautious about buying liquid certificates that claim you can make early withdrawals without fees. There are often restrictions that make these CDs less flexible than they appear.
Compounding is Key
What you actually earn on your certificate is the yield— specifically the annual percentage yield (APY). The yield depends on whether the interest is simple or compound, and how often it's compounded. See current rates for Certificates.
Simple interest is paid only on the principal you initially invested. Compound interest adds in the money that has been earned. To compare the two, try entering different amounts into the tool below.
If you want to earn more dividends than a regular savings account, it's time to open a Term Share Certificate so you can make the most of your money.
or, call us to open a Certificate at 1-800-894-1200
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