The short answer
A CD, or certificate of deposit, is a savings account with two promises built in. You promise to leave your money in for a set amount of time, called the term. We promise to pay you a fixed rate for that whole time.At credit unions, you'll often hear CDs called certificates or share certificates. Same idea, different name. At United Heritage, we use "certificate" and "CD" interchangeably.
How a CD works
You choose a term. Terms usually run from a few months to several years. You make a deposit. Most CDs have a minimum to open. Your rate is locked. The rate stays the same for the full term, even if rates change after you open. You earn dividends. Credit unions pay dividends instead of interest. At United Heritage, dividends on most certificates are paid and compounded quarterly. Our 3-month certificate pays at maturity. Your CD matures. At the end of the term, you can withdraw your money, move it, or let it renew into a new certificate.
CD vs. Savings Account
A simple way to think about it: savings is for money you might need tomorrow. A CD is for money you know you won't need for a while.
When a CD makes sense
A CD can be a good fit when you have money set aside for a specific goal and a rough idea of when you'll need it. For example:
- A down payment you're saving toward
- Next year's property taxes or tuition
- A business or HOA reserve fund
- Savings you want to keep separate so you aren't tempted to spend it
What to look at before you open one
- The APY. APY stands for Annual Percentage Yield. It shows what you'll earn in a year, including compounding. Comparing APY to APY is the fairest way to compare offers.
- The term. Match it to when you'll need the money.
- The minimum deposit. At United Heritage, certificates start at $1,000. Promotional rates can have their own minimum.
- The early withdrawal penalty. If you take money out before maturity, you may give up dividends. At United Heritage, early withdrawal is subject to loss of dividends. The dividends themselves can be withdrawn before maturity without penalty.
- What happens at maturity. Most CDs renew automatically into a new term unless you tell the credit union otherwise during the grace period, a short window after maturity. Put the maturity date on your calendar.
- Special requirements. Some promotional CDs require new money, meaning funds that aren't already on deposit at that institution.
Are CDs safe?
Yes. Certificates at United Heritage are federally insured by NCUA, the National Credit Union Administration, up to $250,000 per member, per ownership category. That's the credit union version of FDIC insurance. Accounts in different ownership categories, like individual, joint and IRA accounts, can each be insured separately. If you're depositing more than that, ask us about excess insurance options.
What's a CD ladder?
A ladder spreads your money across several CDs with different terms, so part of it matures regularly. For example, instead of putting $20,000 into one CD, you could split it four ways:
- $5,000 in a 6-month CD
- $5,000 in a 12-month CD
- $5,000 in an 18-month CD
- $5,000 in a 24-month CD
