2023 has put many of us in a ‘Certificate Era’ – with some of the best savings account interest rates in years. In previous blogs, we’ve discussed the subtle differentiation between share certificates and certificates of deposit (you’ll see these abbreviated to “CD”). We’ve explored the benefits and risks of investing in a certificate and pointed out the benchmarks to look at when guessing if rates will change.
This time, we’re exploring a different strategy – looking at the elevated rate environment to take advantage of the best savings account interest rates available by playing the long game.
WHY ARE CERTIFICATES SO HOT RIGHT NOW?
Throughout the last year, the Federal Reserve has been ratcheting up the federal funds rate to limit the effects of inflation. And often APY* (annual percentage yield – the rate at which you earn money from a certificate) raises right along with it. Since that rate has consistently been rising, certificate rates have followed along, leading to some of the best rates savers have seen in years. But predictions indicate that incremental increases in APY* have likely hit or are approaching their peak.
Under most circumstances, longer terms for a certificate will carry a higher APY*. With the current rate environment, not only are short-term rates increasing, so are long-term certificate rates. Throughout 2023, we’ve seen shorter-term certificates featured at credit unions and other financial institutions with lucrative promotional rates. That focus on terms under one year made those certificates an ideal pick for most investors. But with the rise in rates likely to stall out soon, high-yielding, long-term certificates will have their time to shine.
WHAT’S SO GREAT ABOUT THE WAIT?
It’s true that opening a longer-term certificate means money you’ve invested is less accessible for more time. As we’ve discussed in previous blogs on the topic, certificates are a form of savings account where pulling your money prior to the maturity date carries penalties. But if you can set that money aside for a long period of time, you are locking in the APY* of the certificate for its entire lifespan. You will hold on to the benefits of a high-rate environment for a year or more, even if current rates begin to plummet. This lets you extend the earning potential of some of the best savings account interest rates.
THRIVE WITH A HIGH FIVE
When looking at an overall spectrum of investments, 5% return is typically considered a solid benchmark. As of this writing (November 2023) FFCCU is offering 5% APY** on 12-month term certificates. Given that a share certificate is an easy, direct investment that requires very little research and legwork, it’s a strong choice with a reliable return. Naturally, anyone will want to diversify their investments overall, and the amount you have available for a certificate will vary based on the state of your emergency savings and your need for liquid (easily accessible) dollars. But if you have the cash relaxing in a lower-earning savings account and reasonably suspect that it will remain there for the next year, a high 5% APY* certificate – one of the best savings account interest rates available at the moment – could be a steady vehicle for your investments.