A Closer Look at Share Certificates and Compounding Interest
Are you looking for a safe, secure way to invest your money? Have you heard about Share Certificates but aren’t sure what they are or how they work? Share Certificates are a type of financial instrument that pays out a fixed rate of interest over a specific period. Knowing more about them and compounding interest can help you make the best decision for your financial future.
What is a Share Certificate?
A Share Certificate is essentially an agreement between a member and their credit union. The member deposits a certain amount of money into the account, which then earns interest according to the terms of the agreement or contract. Share Certificates have higher rates than savings accounts but require consumers to keep their funds on deposit for longer periods—typically ranging from six months to five years.
Why Are Share Certificate Funds More Secure Than Other Investment Options?
The biggest advantage of Share Certificates is that they have less risk than other investment options. Share Certificates are NCUA-insured up to $250,000 per person per institution, meaning if anything happens to your credit union, your money is still safe. Also, since the interest rate remains fixed for the term length, there’s no fluctuation in earnings like with other investments such as stocks and mutual funds. This makes it easier to plan out your budgeting goals because you know exactly what kind of return on investment (ROI) you will receive within its set term length.
What Is Compounding Interest?
Compound interest is when a member earns interest on both their principal deposit as well as any accrued interest that has been earned during the term length so far. This means that as time goes on and more interest accumulates due to compounding, it will be added onto the principal balance and earn additional interest itself—which can significantly increase returns over time! For example, if a member deposited $1,000 into a 5-year Share Certificate at 3% APY compounded quarterly with no withdrawals throughout its lifetime; after its five-year lifetime that same original $1,000 would grow into $1,155! That’s an increase in value by 15%.
Saving with Share Certificates has many advantages including security and stability when compared to other investments such as stocks or mutual funds. It also offers consumers peace-of-mind knowing exactly how much their return will be before committing to an agreement with their bank or credit union thanks to compounding interest! If you’re looking for a safe option for investing your savings, then consider an ACU Share Certificate today.
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