News & Tips
Certificates of Deposit (CDs): What You Need to Know
Did you know that your savings could earn even more money for you? A certificate of deposit—also known as a CD—is a special type of savings account with a guaranteed rate of return over a certain time frame. A CD gives your savings a raise even while you sleep!
At Space Coast Credit Union (SCCU), we offer some of the best CD rates in Florida. Learn everything you need to know about how a certificate of deposit works, why CDs are a good investment, and more in this article.
How Does a Certificate of Deposit Work?
To open a CD, you deposit a fixed amount of money for a set time at the interest rate the financial institution is currently offering for that term. In other words, certificates of deposit earn interest on a lump sum deposit for the agreed-upon period.
When you commit to a longer term, you unlock better interest rates. Higher rates translate to faster savings growth. Financial institutions typically display both CD dividend rates and annual percentage yields (APYs). APYs take into account the effects of compounding (more on that below).
The Power of Compound Interest
As you look at CD rates, you’ll also see an APY in percentage form. APY means Annual Percentage Yield. The APY includes both the interest rate and the compounding effect. As you earn interest, it’s added to your balance, and future interest is calculated on the larger amount. This accelerates your savings growth!
Financial institutions are not required to compound interest, but when they do, it offers a better deal for depositors. At SCCU, we compound interest, so your savings grow faster.
Certificate of Deposit Example
Here's a certificate of deposit example that looks at how much $10,000 will make with a 12-month CD at 4.18% (4.25% APY^):
- Initial Deposit: $10,000
- Term: 12 months
- Interest Rate: 4.18% (4.25% APY^)
- Earnings: Over that 12-month period, you’ll earn $424.60 (woo-hoo!).
This certificate of deposit calculator can help you calculate how much interest your CD will yield upon maturity.
Are CDs a Good Investment?
CDs work perfectly for anyone seeking a low-risk way to build savings. They typically offer higher interest rates than savings accounts do, so you can earn a higher rate of return on your investment.
Who Benefits from a CD?
Whether you’re a:
- cautious saver looking to avoid the volatility of stock markets,
- retiree looking to safeguard savings,
- small business owner looking to grow more idle cash,
- nonprofit looking to enjoy the predictable growth CDs offer,
- person interested in growing funds for a house or car down payment,
CDs provide plenty of stability and peace of mind.
What Happens when a CD Matures?
When your CD’s term expires (on the “maturity date”), you have a couple of different options:
- withdraw the money (usually moving the funds into a checking or savings account)
- renew the CD at the same term (a different interest rate may apply)
- roll the money into a CD at a different term and interest rate
Typically, once your CD matures, you’ll have a grace period to decide what you’d like to do next with the money.
What to Consider Before Opening a CD
Here are the top factors to consider before you open a CD:
- Insurance: It’s important to make sure the financial institution is federally insured so that you can proceed with confidence knowing that your funds are protected. Although most financial institutions are federally insured, some are privately insured. SCCU is federally insured by the National Credit Union Administration (NCUA), a U.S. government agency. Learn more.
- Deposit Amount: As a rule of thumb, you shouldn’t deposit any of your emergency savings into a CD, as those funds aren’t accessible without facing fees. It’s a good idea to deposit only the amount of money that you can afford to keep in the CD without touching it.
- Rate and Terms: Longer CD terms almost always offer higher rates than shorter terms. If rates are expected to go down, you might want to invest your funds in a CD with a longer term at a higher rate. If CD rates are expected to go up soon, you might want to invest in a CD with a shorter term, and once it matures, reinvest those funds in a CD with a higher rate.
Certificates of Deposit at SCCU
At SCCU, we offer CD terms between 3 and 60 months (5 years). You can apply to open a CD with as little as $5006 for whichever term you choose, and you can rest easy knowing that SCCU is federally insured by the NCUA.
Plus, we have some of the best CD rates in Florida.
| Term | Dividend Rate | APY^ | Min. Average Daily Balance to Earn APY^ |
|---|---|---|---|
| 3 Months | 3.94% | 4.00% | $500 |
| 6 Months | 4.01% | 4.05% | $500 |
| 9 Months | 4.04% | 4.10% | $500 |
| 12 Months | 4.18% | 4.25% | $500 |
| 18 Months | 4.04% | 4.10% | $500 |
| 24 Months | 3.70% | 3.75% | $500 |
| 30 Months | 3.50% | 3.55% | $500 |
| 36 Months | 3.50% | 3.55% | $500 |
| 42 Months | 3.55% | 3.60% | $500 |
| 48 Months | 3.60% | 3.65% | $500 |
| 54 Months | 3.65% | 3.70% | $500 |
| 60 Months | 3.70% | 3.75% | $500 |
^APY = Annual Percentage Yield.
CD Account rates are accurate as of the date indicated and are subject to change at any time. The minimum deposit required is $500 for all terms. The minimum average daily balance to earn APY (Annual Percentage Yield) is $500. The APY is based on the assumption that interest will remain in the CD Account until maturity. A penalty may be assessed for early withdrawal. Fees may reduce the earnings on the CD Account.
What’s the Difference Between CDs and Savings Accounts?
Certificates of deposit differ from regular savings accounts because the money must stay in the CD throughout the agreed-upon term. If not, then an early withdrawal penalty fee may apply. Because of this requirement, CDs typically pay a higher interest rate than regular savings accounts. Also, you can’t make additional deposits to the CD.
Savings accounts usually offer more flexibility with accessing your funds, but they typically don’t offer interest rates as high as CDs.
What is CD Laddering?
Once you deposit funds in a CD, you’ve locked in your funds. This means you can’t deposit any more funds. You also can’t withdraw funds early without facing a penalty. Because of this, a savvy strategy would be to ladder your CDs, which means opening multiple CDs of different terms at the same time. This gives you the chance to maximize earnings on savings for both short- and long-term goals. Learn more here.
More Savings Options at SCCU
SCCU offers a variety of savings options to suit your needs:
- Money Market account: This kind of account comes with a tiered interest rate that differs by the account balance. As the amount of money in the account goes up in a money market account, so does the interest rate. Learn more about the difference between Money Market accounts and CDs here.
- IRA CDs: When you invest your retirement savings into an IRA CD, you’ll have a guaranteed rate of return with maximum security. Stocks and bonds may yield better returns, but a CD is a low-risk choice. Please see a tax advisor for specifics on your situation.
- SCCU Saving Cents account: This account helps you save while you spend. Every time you use your Visa® debit card, we round up your purchase to the nearest dollar and deposit the difference into your SCCU Savings account.
- Christmas Club account: Make holiday shopping stress-free with this account, where you earn interest all year on your funds. On October 31, your funds are automatically transferred from this account into your savings account.
- My Way Savings account: If you’d like a savings account dedicated to a specific goal, such as a car or vacation, this account is a great option.
See more of our savings account options here.
Benefits of Being an SCCU Member
Credit unions are not-for-profit organizations. This means that, rather than focusing on maximizing profits for the financial institution, credit unions pool their money to promote savings and provide affordable loans to members. Credit unions work to provide valuable benefits to their members, such as offering better interest rates for CDs and lower interest rates for loans.
SCCU offers a wide range of financial services from accounts to loans as well as exclusive rates for heroes. Plus, with credit unions, you’ll often see fewer fees overall than you would at banks. Credit unions also promote financial wellness for their members—just like we do at SCCU—to help members achieve their goals. For example:
- Financial Calculators: Estimate payments, see the impact of saving, and more.
- Fraud Prevention Center: Arm yourself with knowledge to fight fraud.
- FICO® Score: SCCU members can monitor their score for free in Online & Mobile Banking.
- Home Buying Center & Auto Buying Center: These pages can help you make better financial decisions for those big purchases.
We offer our members a variety of tools, resources, and helpful articles, and we encourage you to explore our Financial Wellness page for more information.
More About SCCU
SCCU membership is open to relatives of current members and all who live or work in these counties in Florida. We’re the third-largest credit union in Florida, serving nearly 700,000 members with 60+ branches and 24/7 Online & Mobile Banking. You can establish your membership at SCCU online with a $5 deposit into a Share Savings account. If you have questions, please feel free to fill out this form or reach out to us.
