Article | May 19, 2023

Savings Account or Term Certificate Account? What is Right for You?

Budget & Save

Group of women dress shopping

When you’re planning for the future, money matters.

Choosing the right type of savings account can be overwhelming. With so many options available, finding the right one for your situation and goals can be challenging.

We talk often in our financial wellness programs about setting savings goals, and how different types of savings accounts can help you plan for the future. It can be particularly helpful to set SMART goals – goals that are Specific, Measurable, Achievable, Relevant, and Time-Bound. When you are working to grow your savings, setting SMART goals can help you determine which type of account will best support your efforts and maximize your savings success.

In this blog, we’ll compare different savings account types in a fun and easy way, so you can make an informed decision.

What is a Savings Account?

A savings account can empower you to save money by keeping your savings separate from your daily expenditures with the benefit of being able to access the funds if needed. Some other great features of savings accounts include:

  • Very low minimum balances required to maintain the account
  • Easy access to your funds – no set terms for when you can access your funds. Some financial institutions may limit the number of times you can withdraw from your savings account within a specific time frame. A savings account may also allow you to set up automatic transfers from the account to your checking or other accounts at the same institution.
  • Dividends (also commonly known as interest) paid on your account balance
  • No fees or very low fees to maintain your account

At a credit union, your savings account is typically your initial membership account and a passport to accessing other credit union benefits. At Golden 1, all members start with a regular savings account, then have the opportunity to add other types of dividend-earning accounts, including: 

  • Money Market accounts: These accounts earn a higher rate than a Regular Savings account and still allow easy access to your funds. 
  • Flex Savings accounts: These accounts allow you to set your own payout date in the future, safeguarding funds for when you need them. They are popular with people saving for weddings, vacations, or other time-specific events. 
  • Youth Savings accounts: Parents can help their children establish good savings habits by opening a Youth Savings account for them. 
  • Santa Saver accounts: Similar to a Flex Savings account, this account makes it easier to put money away for the holidays. You can even set up a payroll deduction so you’re funding your holiday shopping all year. In November, the funds become available for your use. 
  • High-Yield accounts: A high-yield account gives users the opportunity to earn higher dividends on their everyday accounts. Golden 1 offers a MarketRate Checking account that offers higher dividends on your checking balance while still allowing you to maintain convenient access to your funds. 

What is a Term Certificate? 

A Term Certificate, sometimes referred to as a Term Savings Certificate, is a specific type of savings account. 

A Certificate can be a smart, low-risk investment option because it provides a guaranteed return and it is federally insured by NCUA. Your return will be determined based on four variables: rate, term, initial deposit, and withdrawal terms. 

  • Rate: The top benefit of a Certificate is higher earning potential. In exchange for agreeing to keep your money in the Certificate account for a specified period of time, you’ll receive a higher dividend rate than you might receive on a regular savings account. 
  • Term: Opening a Certificate requires you to commit to setting aside funds for specific length of time. At Golden 1, this time frame can be as short as three months or as long as 60 months. 
  • Initial Deposit: Certificates may require a higher minimum balance to open a Certificate account. 
  • Withdrawal Terms: If you need to take money out of your account before its term expires, you’ll pay a small penalty. 

When is a Certificate a Good Option? 

Certificates can be a valuable savings option if you’re seeking to earn money on your savings without taking on too much risk.

Certificates are:

  • Low risk: Stocks and other investments options can experience more volatility. Certificates are a lower risk option because they don’t lose value and they are federally insured by NCUA.
  • Higher earning: Certificates offer higher dividend rates. If you can plan ahead and keep that money invested for a set period of time, you’ll safely and conveniently earn more. It’s also important to note that Certificates may offer less flexibility than a savings account because of this potential for higher earning.
  • Predictable: Unlike some higher-risk investment options, Certificates offer solid, predictable returns. When you open your account, you can calculate exactly what you should earn during the Certificate’s term as long as you keep the money invested during the entire time.
  • Good for saving toward a goal: Because you put money away for a set amount of time, a Certificate can be a good option if you’re saving for a specific goal like a wedding, a vacation, or a special project.
  • A solid diversification option: If you have money in other higher-risk investments, a Certificate can give you a lower-risk option to counterbalance other portfolio items and ensure a steady return.

Is a Savings Account or a Certificate Right for Me? 

Many people maintain both a Savings account and Certificate account(s), using their savings account to save for short-term goals and a Certificate to put away money for long-term plans. To determine which one is right for you, consider your goals and what you hope to achieve with your funds.

  • Just getting started: If you’re new to saving, you may need time to build up your balances. A Regular Savings account has a low minimum balance, so you can start putting money away now and earn a risk-free return.
  • Emergency fund: It’s a good idea to keep six months of living expenses in case of job loss or unexpected costs. A Regular Savings account keeps these funds accessible, because you never know when an emergency might arise.
  • Special event planning: If you’re planning ahead for a special event like a wedding or a vacation, a Certificate keeps your money safe and provides higher earnings until the big day arrives.
  • Saving for a down payment: This one depends on the timing of your anticipated home purchase. If you are making a long-term plan to buy a home or car, a Certificate can help your funds grow faster. If you’re planning to buy soon, a Regular Savings account can allow you to earn dividends while you’re comparison shopping, as well as make it possible to make an offer and purchase the home without having your money tied up in a Certificate. 

You’ve already managed the hardest part of the process – resolving to save and preparing to reach your long-term financial goals. From here, you have several safe and secure savings options to choose from. 

And, no matter whether you choose a Savings account or a Certificate, your money is safe and sound with Golden 1. We’ve been protecting members and their finances for 90 years, and our members’ deposits are also federally insured by NCUA

You can open your new savings account or Certificate account through Mobile or Online Banking. You can also make an appointment at a branch location or call our contact center to talk with a member service representative about the best option for you. If you are not yet a member of Golden 1, we can also help you establish your membership so you can start enjoying the benefits of your new account.