Share Certificates: All Gains, No Pains

Filed under: Savings, Young Adults, Adults, Retirees

     Has your pulse rate been following the ups and downs of the stock market?  If so, you may be more comfortable keeping some of your money in share certificates, your credit union’s version of CDs.  The interest on certificates is currently above the rate of inflation.  Plus, when you consider real returns, the safety of your investment, and the magic of compounding interest, certificates are definitely an investment strategy worth investigating.

Guaranteed Safety

     Earthmover certificates are insured up to $500,000, and your principal isn’t at risk, even in the case of an early withdrawal.  This is especially important if you need your money in the short term, for a major purchase such as college tuition, home improvements or an upcoming vacation.  Share certificates let you plan your financial future with confidence because you know your return up front.

Laddering: A Sound Saving Strategy

     Many financial experts suggest staggering or “laddering” the purchase of certificates.  You can build a system of guaranteed steady returns, as well as incorporate a certain amount of liquidity into the investment process.

     Basically, laddering refers to buying certificates with varying dates of maturity.  For example, let’s say you have $10,000 to invest.  To establish a one-year ladder, you would put $2,500 each into: a three-month, a six-month, a nine-month, and a one-year certificate.  That means you have a certificate maturing every three months.  As each one matures, you would simply purchase a one-year certificate to continue the pattern.  This system allows you to achieve a more consistent return on your savings.  If rates move up, you’ll be able to earn the higher rate on part of your money.  And, if rates decline, only a portion of your money will be affected.

     Remember, you always have the option of choosing a longer-term certificate to lock in higher returns.  Laddering is a flexible method of investing designed to put you in control of your finances.  The continual cycle of staggered maturity dates allows you to earn respectable returns no matter what the stock market does.

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