You know you should save for a rainy day. You should save for college. You should save for retirement. Save! Save! Save! If you feel like you aren’t saving enough, have you considered setting up a certificate of deposit? Why choose a certificate deposit over other saving options? We’ll tell you why!

Return on your deposit

Banks, credit unions, and other financial institutions have a need to borrow money. One source of those funds is from people like you! In effect, your certificate of deposit is a loan to the bank or credit union that is repaid to you plus interest.

CDs have several advantages that recommend them as the best money saving option:

  • Safety. Your funds are not at risk. You can invest your money with peace of mind. If the economy goes south, you won’t lose your investment—it’s insured through the NCUA. You also have a guaranteed return on your investment.
  • Higher return than savings or checking accounts. Because you agree not to touch the funds for a certain period of time, the credit union agrees to pay you a higher interest rate on those funds. If you already have a cushion of funds in your savings account that you never go below anyhow, it could make sense to invest that amount in a higher-yield financial instrument.
  • Flexible terms. You have flexibility in setting up a certificate of deposit. You select the amount and term that works for you. You’re in control. In return for agreeing not to touch a specific amount of your money for a specific amount of time the credit union agrees to pay you a specific amount of interest.

This all sounds great, so where’s the catch? Yes, there are some disadvantages to be aware of when investing in CDs:

  • Limit your liquidity. You don’t have full access to your money that’s invested in a certificate of deposit. If you know you’ll need your money for upcoming expenses before the shortest term of deposit, it doesn’t make sense to set up a CD. So if you only use funds you are reasonably sure you won’t need to access for several months or more, the limited liquidity won’t become an issue.
  • Penalty for early withdrawal of funds. It is possible to break a CD, but it comes at a cost. Before you transfer your savings into a CD, you need to consider whether you have sufficient funds to cover your more immediate needs, including a cushion for emergencies. No one wants to lose money, so avoid having to pay a penalty by keeping enough of your finances liquid.
  • Interest is locked in. Interest rates fluctuate over time. Locking in a rate works to your advantage when interest rates drop during the term of your deposit. Your rate remains the same; you don’t lose. But if rates increase, you won’t be able to take advantage of the improved rate. That’s the gamble you’re making.

Risk vs. Reward

You also need to know your tolerance for risk and consider how much of your time you’re willing to invest in monitoring your finances. You might enjoy watching the stock market on a daily or hourly basis.  You might prefer socking those savings away and rarely giving them another thought until you need to.

Regardless of your tolerance for risk and need for reward there’s a savings strategy that will work for you. Bear in mind that your strategy will likely change over time, depending on your circumstances. Marriage, children, and retirement place different demands on your financial resources.

What’s the best money saving option? Here’s how three of the most common savings/investment vehicles stack up in regard to risk and reward:

  • Savings Account. Little risk with little reward.
  • Certificate of Deposit. Little risk with moderate reward.
  • Mutual Funds/Stocks. Some risk with higher potential reward, but also potential loss.

You’ve been told not to put all your eggs in one basket. So diversify your strategy for your savings and put your money into three baskets. If you prefer a “Goldilocks” approach—not too much risk and not too little reward—then CDs are “just right.”

Climbing the ladder of success

So, how can you make the most of a certificate of deposit? One common strategy is called “laddering.” The concept is simple. Instead of placing all the funds you want to deposit into a single CD, you divide your funds into CDs of differing terms.

To minimize the disadvantages of limited liquidity and penalties for early withdrawal, set up a sequence of CDs with terms of deposit spaced every six months. For example, place $2,000 into a six-month certificate of deposit. Next place another $2,000 into a 12-month CD and so on until all your available funds are invested.

Generally, you’ll receive a better interest rate on a longer-term certificate of deposit. But by initially staggering the term lengths, you’ll always have a CD maturing every six months. When your six-month CD comes due, you can deposit your funds in your regular savings or checking account or re-invest it in a longer-term certificate of deposit with a better interest rate.

If an emergency arises before one of your CDs comes due, you can take the hit on early withdrawal on the certificate of deposit that is closest to maturity without affecting your other CDs. This simple method of laddering allows you to invest in higher-yield CDs without the downsides.

Need more smart strategies?

United Financial has plenty of ideas and options when it comes to CDs. Come talk to us. We’ll get you set up with a combination of accounts to satisfy your need to increase your bottom line without risk.

To help you set up a “ladder,” United Financial offers CD terms ranging from three months up to five years. The amount you need to invest varies with the length of the term. You’re sure to find an option that works for you.

We also provide specialized CDs that address disadvantages, such as limited liquidity and penalties for early withdrawal. With a “Safe Parking” CD, you can make one withdrawal of up to half the deposit amount during the 36-month term without incurring a penalty.

Is your concern having an interest rate that is locked in and prevents you from earning a higher rate? Then our “Step Up CD” could be for you. It allows you to take advantage of an increase in the interest rate once during the 20-month term.

We also have CDs designed especially for youth. Anyone 21 years-old and under can open a certificate with $100. These certificates are for six months. United Financial even has a CD specifically for your F.F.A. or 4-H-er! Use the sale of your animal to open this CD and six months later you can use it to buy your next animal or anything else you need.


Summer is a great time to start investing in CDs or expanding your CD portfolio. United Financial has summer specials, so come in and find out how you can earn more interest. We’ll help you sort through all our options to find the best money saving option for you. Then you can take that summer vacation knowing your money is working hard for you!