Imagine you keep all of your money in a regular savings account—$10,000 tucked away for a rainy day earning an average APY of 0.10%. Seems safe enough, right? You put $10,000 in and after 5 years you’ll have around $10,050.
Except, you need to factor in inflation.
Inflation averages averages around 3% every year. So how does that affect your savings? Because new money is being printed on a daily basis, essentially making the money in your account less ‘rare,’ and therefor less valuable. The next time you watch an old movie, you’ll notice how much less things cost in the film—that’s the effect of inflation.
So, you’ve still got $10,000 in your account, but after 5 years of inflation it only has about $8,600 in purchasing power because it was only earning a little bit of interest while the cost of items went up much faster.
This is why certificate accounts are so beneficial. In a certificate account, your money grows at a much higher interest rate than a normal savings account. If you put that $10,000 into a 5-year term certificate account at 3.30% APY*, it would be worth more than $11,700 at the end. Same $10,000, but by investing in a certificate account you’ve kept up with inflation. Certificate account rates are also locked in, so you always know what your return on investment is going to be. Regular savings accounts have fluctuating interest rates that are affected by the economy, so you never really know what you’re going to get.
You can open a certificate account with as little as $500, and if you choose a term length that’s at least 12 months you can earn dividends on your account. You read that right—earning dividends is another advantage certificate accounts have over regular savings accounts. You can choose to receive your dividend at the end of each calendar month, or have it automatically reinvested into your account, further growing your savings.
Many people are deterred from opening an account because they are worried about not having access to those funds for a long term. While certificates are designed to hold your funds for a set length of time, there are a couple options for accessing that cash if you need it:
You may borrow funds against your certificate. That gives you the flexibility of accessing your cash while still earning dividends on your funds.
You may access funds before the maturity date, but there is a penalty.
Certificate accounts are a safe, secure, and smart way to grow the money you’ve saved.
*Annual Percentage Yield (APY) as of 11/09/18. 0.10% APY applies to standard share savings accounts. 3.70% APY certificate rate applies to a $250,000 minimum for 60 months, 3.30% APY certificate rate applies to a $10,000 minimum for 60 months, 3.25% APY certificate rate applies to a $500 minimum for 60 months, 0.300% APY certificate rate applies to a $500 minimum for 1 month. Rates are subject to change without notice. Certificate accounts subject to early withdrawal penalties.
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