Boost your savings: Short-term CDs & savings certificates

Whether you're eager to boost your savings, earn attractive interest rates or add a touch of flexibility to your financial strategy, short-term CDs and savings certificates are popular options in 2023.

Because of their flexibility and competitive interest rates (fixed for the term of the certificate), short-term CDs and savings certificates are viewed as low-risk savings tools, especially when interest rates are rising in the economic climate. Learn about the differences between CDs and savings certificates and how they can help maximize your savings.

What are savings certificates or certificates of deposits (CDs)?

Savings certificates and certificates of deposits (CDs) allow people to save money and earn interest over a fixed period. They are popular options for people who want to grow their savings safely and reliably. When you invest in a CD or savings certificate, you’re essentially lending money to a financial institution. In return, they pay your investment amount back to you along with the interest at the end of the term. Savings certificates and certificate of deposit interest rates are typically higher than what you would earn in a regular savings account.

Savings certificates vs. CDs: What’s the difference?

When you purchase a CD, the interest rate is fixed for a specified term, and the return on your investment is guaranteed. This makes CDs appealing to people who prioritize stability and predictable income. The terms of CDs vary, ranging from a few months to several years. One drawback of CDs is that withdrawing funds before the term ends can result in penalties and loss of accrued interest. CDs also typically have minimum balance requirements, which can vary depending on the bank and the terms of the CD. Failure to meet minimum balance requirements could lead to penalties.

Savings certificates  are essentially the credit union version of a CD. They also offer competitive interest rates for a specific period, and because credit unions are not-for-profit financial institutions owned by their members, they may be able to provide higher interest rates compared to traditional banks. Like CDs, savings certificates also have terms and minimum balance requirements, and not meeting the terms and requirements can incur penalties.

Both CDs and savings certificates are insured – CDs by the Federal Deposit Insurance Corporation (FDIC) and savings certificates by the National Credit Union Administration (NCUA) – which provides an added layer of security.

Short-term, higher interest

A “short-term” CD or savings certificate has a relatively brief maturity period (generally less than one year), with common durations of three, six, nine and 12 months. The interest rates for short-term CDs and savings certificates tend to be higher because they are influenced by the economic environment. If interest rates in the broader economy are rising, financial institutions may offer higher rates on short-term CDs and savings certificates to attract investments for a shorter period, which gives them the flexibility to adjust rates their rates more frequently according to economic factors.

Tip:  Check out this  list of national interest rates and interest caps  maintained by the FDIC.

CD/Savings certificate calculator

Use  this calculator  to estimate the total interest on short-term CDs and savings certificates.

Compare rates, fees and terms

When it comes to selecting a CD or savings certificate, it’s important to compare interest rates, fees and terms.

Even a slight difference in rates can significantly affect the growth of your savings over time. Exploring multiple options might uncover higher rates. Carefully review the fee structures of different institutions and look out for maintenance fees, early withdrawal fees or other charges that could impact your overall returns. When reading terms and conditions, consider the maturity period, availability of/access to your funds and renewal terms.

By taking the time to compare interest rates, fees and terms, you empower yourself to make an informed decision that suits your financial needs.