Shorter-Term Savings Options— Which is Best for You?

Shorter-Term Savings Options— Which is Best for You?

While it goes without saying that saving for the future or unexpected life events is crucial to a smart financial strategy, knowing which savings vehicle option is right for you, depends on your individual needs.

With so many options to choose from it is not always easy.  Determine how soon you will need your money and compare rates and risk. Investments such as 401ks and IRAs may give you certain tax advantages and a greater return, but they keep your money tied up longer than your circumstances may permit and have hefty early withdrawal penalties. Let's consider some other options for savings that you may need sooner than later.

What is a share certificate?

A share certificate is like a CD (certificate of deposit), except that CDs are issued by banks. In contrast, share certificates are issued by credit unions, like Firefighters and Company FCU. Share certificates pay dividends.

The advantages of share certificates are that your money is safe and insured by the NCUA up to $250,000, your rate of return is guaranteed, and share certificates generally offer higher rates of return than savings or money market accounts. The length of time your money is tied up in a share certificate is usually between 6-60 months, which allows for flexibility in planning. You can even ladder your share certificates (investing the money in more than one share certificate and varying the terms), so that you have access to part of your money more frequently with shorter term options combined with longer term options. If you need help with laddering your share certificates, call the credit union at 937-228-1614.

The disadvantages of share certificates are that they typically require a minimum opening deposit of $500-$1,000 and your funds are inaccessible for the length of the agreed-upon term without paying penalties. The Firefighters & Company FCU minimum deposit for a share certificate is $500.

What is a money market account?

The primary difference between share certificates and a money market account is that a money market account offers a much greater degree of liquidity, but usually does not pay a rate as high as a share certificate. Money is not tied up for any specified term, so it has more of the fluidity of a traditional checking account, yet it yields a higher rate of return than standard savings accounts.

The advantages of money market accounts are that your money is safe and insured by the NCUA up to $250,000, and can be conveniently withdrawn at any time without having to wait on term maturation limits.

The disadvantages of money market accounts are they typically require a large initial cash deposit of $500-$2,500. Additionally, money market accounts usually limit the number of monthly withdrawals and carry minimum monthly balance requirements. Firefighters & Company FCU money markets cannot go below $2,500 or a fee is imposed. We do not limit the number of monthly withdrawals.

The bottom line:

If you can hold off on access to your money for an agreed-upon but not an excessively-long term, share certificates usually offer a higher yield on your money. Suppose you require more liquidity and easy access to your savings without penalty. In that case, a money market account will give you this convenience while yielding greater returns than typical savings accounts but less than most share certificates.

Your credit union has many savings options to help you with your individual situation. Call the credit union at 937-228-1614 or text us at 937-228-7963 for more information or check out our latest high yield rates and savings options.