Share Savings Certificates are an excellent savings option. First of all, they’re NCUA-insured.  Second, they have a better dividend rate than a savings account.  And, generally speaking, they’re safer than the stock market. But, before you lock up your money, answer these questions:

1.) What am I saving for?

If you’re saving for a rainy day, you’ll need the flexibility to withdraw your money quickly. Typically, a short-term certificate has small penalties for early withdrawal.

Consider a long-term certificate if you’re saving for a goal like a vacation or a house.  Long-term certificates earn a better dividend rate.

2.) What are the penalties?

For short terms (under one year), average penalties for early withdrawal are one to three months of earned dividends. For longer-term certificates, penalties can range from six to 24 months of earnings. There may also be a flat fee as well.

If flexibility is important to you, choose a certificate with lower penalties.  Lower penalties will allow you to make withdrawals if needed.

3.) What kind of certificate is right for you?

The language surrounding certificates can be somewhat confusing. Here are some of the more common types:

Jumbo (or high-dividend) Certificate

This is an account with a higher minimum deposit – around $10,000. However, the only downside is having your money locked up for the term of the certificate.

Bump-up Certificate

A bump-up certificate enables you to take advantage of rising dividend rates. For example, you buy a certificate at 1.5%. After six months, your financial institution offers the certificate at 3%. With a bump-up certificate, you can “bump up” your rate to 3%.

Add-on Certificate

This kind of certificate gives you an opportunity to make an additional deposit. Therefore, allowing you to earn dividends on the new amount going forward.

Liquid Certificate

This kind of certificate allows you to make a limited number of withdrawals without paying the penalty.  However, a set amount of time usually must pass before withdrawals can be made without penalty.  Liquid certificates also come with a minimum deposit, most of the time.

4.) How vital is the dividend rate?

It’s tempting to grab the highest dividend rate you can find. However, a tenth of a percent is not likely to make much of a difference. Terms of service, the level of support, and the flexibility provided by the certificate outweigh another tiny quantity of dividend.

Most importantly, deposit your money with an institution you trust. Certificate agreements can be cumbersome documents. Therefore, some institutions might use that density to hide a clause that can cost you.