A simple way to grow your savings is by investing in certificates, which are sometimes called certificates of deposit (CDs) or Share Certificates. They are a great way to save money because you can choose terms to suit your saving needs. When you invest in a certificate, you consent to leave money in that account for a predetermined amount of time, for an agreed-upon return on investment. Depending on what you’re saving for, you can use different saving strategies to maximize that return. Let’s look at three savers who take different approaches to saving.
Saving in the Short Term
Newlyweds James and Yolanda have very generous friends and family; they received $8,000 in wedding gifts. They want to take a long honeymoon, but also want to wait until they can take an extended vacation and go overseas. They decide to purchase a 12-month certificate, so their funds will be available in one year. If they get a good deal on tickets, with the leftover money from the certificate, they can always invest in a 4-year certificate to start saving for their fifth anniversary.
Setting a Goal to Save By
Harris is a First Lieutenant who’s training to compete in a triathlon in Hawaii. He recently inherited some money that would allow him to go, but he knows he isn’t ready to qualify yet. Harris decides to invest his inheritance in a 5-year certificate. He knows that having the money safely waiting and earmarked for his goal will motivate his training, and ensure that when he’s physically able to meet the challenge, he’s financially able as well.
Climbing the Savings Ladder
Margaret is a retiree who has waited her whole life to travel the world. She wants her money to keep growing, but wants periodic access to it for cruises and tours. She has $20,000 to devote to a laddering strategy, and instead of buying one $20,000 certificate, she buys five $4,000 certificates with staggered maturity dates of 12 months, 24 months, 3 years, 4 years and 5 years. As each certificate matures, Margaret will use what she needs and invest the remaining funds into another five-year term.
Using this strategy, Margaret will have $4,000 available to use every year for the next five years. Each year, as she invests in a new 5-year certificate, she could earn a higher rate than if she bought another shorter-term certificate. But because she laddered the initial investment, she still has liquid money available every year. Another advantage is that after four years, she’ll have a higher-rate 5-year certificate maturing every year.*
Think About Your Savings Strategy
What’s your savings goal? How might you use certificates to fund your next great adventure? Read more about certificates from Navy Federal or use the certificate laddering calculator to explore how you can start making the most of your savings.
*Rates for products may vary and are based on the type of certificate, term and amount purchased. Federally insured by NCUA.