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June 18, 2024

Do you already have an emergency fund? Looking for one more way to increase your savings? How about adding Share Certificates? These investment tools offer another option to increase your savings and build wealth. Here’s what you need to know.

What is a Share Certificate?

A Share Certificate is a term used to describe a specific type of longer-term Savings Account available to credit unions, which function similarly to a certificate of deposit (CD) found at a bank. It pays a higher rate of return, but the funds must remain in the account for a set period – typically between three months and five years. You'll have to pay an early withdrawal fee to access the money before the Share Certificate matures. 

Share Certificates are insured by the National Credit Union Administration (NCUA), which protects deposits of up to $250,000. 

How do Share Certificates work? 

Most credit unions allow their members to open a Share Certificate by applying online or visiting a local branch. If approved, you’ll make the opening deposit right away. Remember that additional deposits aren’t permissible during the term, so you must ensure you deposit the desired amount upfront. 

As your money sits in a Share Certificate, it will earn compounding interest as specified in the agreement. You can pull out the cash plus any interest earned once the term ends. Otherwise, the credit union will likely roll it into a new Share Certificate with the same term. Still, the rate could vary depending on market conditions.

Share Certificates vs. emergency fund vs. Money Market Account

Let’s take a closer look at how emergency funds and Money Market Accounts differ from share certificates:

Emergency funds 

Emergency funds are generally stored in traditional Savings Accounts. Once you make at least the minimum opening deposit, your money will begin to accrue interest. Unlike Share Certificates, you can make deposits as often as you’d like and earn interest on those funds. Withdrawals are also allowed but may be limited to a set number per month before you incur fees. 

Money Market Accounts 

Money Market Accounts pay a higher rate of return than traditional Savings Accounts but less than Share Certificates. They also come with a sizable opening deposit and minimum monthly balance requirements. Still, they offer the best of both worlds by combining the benefits of checking and Savings Accounts. 

These accounts come with a debit card and checks to make purchases. You can also make unlimited deposits, but the number of withdrawals is limited to a certain amount.

How to ladder Share Certificates to save even more – and faster

You can use the Share Certificate ladder strategy to make your money work even harder for you and reach your savings goals faster. It involves investing in multiple Share Certificates with different rates and maturity dates to maximize your earnings.

To illustrate how this works, let's say you have a $12,000 investment at your disposal. One option could be to divide this amount into three Share Certificates, each worth $4,000, and invest in them based on the maturity period and expected rate of return, as follows: 
  • 1-year Share Certificate with 0.75% APY
  • 18-month Share Certificate with 0.80% APY
  • 3-year Share Certificate with 1.25% APY

Once the first Share Certificate matures, you can roll it into another to keep growing your money. And you won’t have to worry about not having cash on hand as the second share certificate will become payable shortly after. 

The Share Certificate ladder approach is also beneficial for other reasons. You can earn a higher return now without tying up all your cash. And unlike other investments, you get peace of mind knowing your rate of return is guaranteed.

What to Know Before Opening a Share Certificate 

You will come out on the winning side if market conditions decline during the holding period. You could miss out on potential gains if the opposite occurs. 

Explore HawaiiUSA Share Certificates today