What Are Certificates, and How Do They Work?

You’ve most likely heard of savings accounts, but are there other tools and strategies you can use to save? Certificates are a perfect option to consider for both short-and long-term goals. Your money will be stored away and there (plus interest) when it’s needed most.

In this blog, we'll take a closer look at what exactly certificates are, how you can use them to your advantage when saving, and product offerings with American Heritage Credit Union.

1. What Are Certificates?

A certificate, also known as a certificate of deposit, is a type of savings account offered by banks and credit unions. Every certificate comes with a term, which is the amount of time you’ll store your money with your financial institution without being able to access it. You can take advantage of a variety of terms ranging from 3 to 60 months with certificates from American Heritage.

Certificates also earn dividends, which is the percentage of interest you’ll earn for your money based on the current Annual Percentage Yield (APY) and your deposit. Banks and credit unions meet regularly throughout the year to determine the exact dividend rates for certificates and other products.

Most certificates will also require a minimum deposit. This is the least amount of money you need to open the account. However, many financial institutions do not require huge deposits to open a certificate. For instance, American Heritage requires a minimum deposit of $1,000 to receive the full APY percentage.

Certificates are typically insured up to a specified amount. This would apply in the extremely unlikely event that the financial institution you’re working with were to close, lose your funds, or any other unforeseen event. The Federal Deposit Insurance Corporation typically secures funds by banks and other institutions, while the National Credit Union Association secures funds for many credit unions.

2. Defining Savings Goals

Whether your savings strategy will include certificates or not, it's always important to define your savings goals and ensure they're measurable and achievable. Consider using the SMART goal method, which means your goals are:

• Specific – an example would be 'putting a down payment on a car in a year's time'
• Measurable – an example would be 'having $1,000 saved towards the car and needing to save $3,000 more'
• Achievable – you want to ensure the goal is something that's realistic for you to accomplish within your timeline 
• Relevant – you should need a new car if your current model has high mileage, and you're seeking something more reliable

• Time-bound – set a clear timeframe for the goal, like one year

3. Common Uses for a Certificate

Since certificates can come in a variety of terms, they can be smart savings options for a variety of goals and factors. You may want to consider opening a certificate for things like:

• A wedding
• A down payment on a home
• A family vacation or honeymoon
• Buying a car or making a down payment on one

• College expenses

A certificate is also a great option to look for during tax season. If you receive a refund once you file your taxes, consider depositing that money into a certificate. You’ll earn even more money through the dividends you’ll receive on your deposit! American Heritage currently offers a 12-month IRA Certificate at 3.81% APY¹. Learn more here.

4. What to Look for in a Certificate

It’s important to do some research and shop around when considering opening a certificate, just as you would with a mortgage or other type of loan. Some of the key factors to look for in financial institutions and the certificates they offer include:

• The range of terms – do they offer a variety of timeframes, or are they limited? Do the timeframes they offer align with your specific goals?
• The dividend rates – how competitive do the rates appear to be? Do the rates change often, or are they fairly consistent?

• The minimum deposit – do you have enough money on-hand to meet the minimum deposit requirement?

5. Pros of a Certificate

There are several benefits that come from opening a certificate. Some of these include:

• A guaranteed return – when you open a certificate, you'll be able to tell exactly how much you'll earn from dividends at the end of the term
• Security – remember, most institutions will secure a portion of your deposit. For American Heritage, your funds are secured up to $250,000 by the NCUA.

• Timing – you’ll know exactly how long your money will be stored away and when it will become available to you (plus interest)

6. Cons of a Certificate

While there are some great benefits to certificates, they aren’t without their drawbacks. Some of the cons include:

• Early withdrawal – certificates aren’t liquid, meaning you can’t access your money until the end of your term, known as its maturity date. If you end up needing the money sooner, most financial institutions impose an early withdrawal penalty.

• Lower earnings – while every product and financial institution is different, certificates traditionally offer lower returns than riskier products like stocks or even something like a bond

7. Savings Alternatives to Certificates

If you’re seeking more flexibility or want to explore other options, here are some savings alternatives to certificates.

• Traditional savings accounts – the most common option, where you can access funds easily and likely won't have to worry about a minimum balance.
• High-yield savings accounts – with a high-yield savings account, you can expect to earn more in dividends. These accounts also generally have a minimum balance that must be met.

• Bonds – with a bond, you lend money to an issuer, who will eventually repay you plus interest. Bonds are similar to certificates in that they are also generally low-risk.

8. Certificates with American Heritage

American Heritage offers both certificate and IRA options that come in a variety of terms spanning 3 to 60 months. Your funds will grow steadily and be secure with us, ensuring you stay on track to meet your financial goals.

We’re also proud to offer a special Bump-Up Certificate! With this offering, you can choose to increase your dividends one time over the course of your certificate’s term to receive a higher posted rate. This way, you won’t miss out on a better rate!

¹Annual Percentage Yield (APY) listed paid on $1,000 minimum balance. $500 minimum balance Share and IRA Certificates available at 0.10% lower Annual Percentage Yield. 12-month, 3.91% APY available for Term Share IRA(s) only with a minimum balance of $1,000. A penalty will or may be imposed for early withdrawal. Rates are subject to change. Rate effective as of February 20, 2026, and are subject to change. Insured by NCUA. Not a member? Join today.