News & Tips

What is a Certificate of Deposit (CD) and How Does it Work?

The Pros of CDs 

• Low minimum deposit: Many banks require a minimum deposit of $1,000 to open a CD, but at SCCU, you can open a CD at any term we offer for a little as $500⁶!
• Security: Not to worry, our funds are federally insured by the National Credit Union Administration (NCUA) for up to $250,000 per share owner per insured credit union for each account ownership category. This means that with CDs that fit within the insurance limits, you can never lose your principal investment, which makes them a less risky choice than stocks and bonds.
• Fixed interest rate: CDs typically pay more in interest than your typical checking, savings, or money market accounts. Plus, since it’s a fixed interest rate, you can easily calculate what your final amount will be for the term you choose.
• Flexible terms: At SCCU, we offer a variety of short- and long-term CD options: 6, 12, 18, 24, 30, 36, 42, 48, 54, and 60 months. You can view our current rates here. Interest rates tend to be higher for longer terms. If you know you’ll need to dip into extra savings in the near future, you can choose the six-month CD option and still benefit from the interest you’ll receive.
• No monthly fees: Even better, our CDs don’t require a monthly service fee, which helps maximize your interest earnings.
• Easy maturation options: Once the CD has completed its term, you have a variety of choices of what to do with your funds next.

The Cons of CDs

• Early withdrawal fees: The biggest drawback of a CD is its “limited liquidity”—it’s a hands-off savings option. You can’t withdraw the funds before the CD reaches maturation, or you’ll face an early withdrawal fee. So, it’s better to deposit an amount that you’re okay with setting aside for the term you select. 
• Inflation consideration: CD rates don’t typically align with inflation, so the value of the funds you receive at maturation may pale in comparison to inflation values. Be sure to keep that in mind before choosing a long-term CD. 

What is a Money Market Account?

If you’re looking for a high-earning savings account at SCCU, then a Money Market may be just for you. (Psst, despite the name, it has nothing to do with the stock market.) This type of savings account comes with tiered interest rates, which vary based on the account’s balance. Like CDs, Money Market accounts at SCCU are also insured by the NCUA.

Pros of Money Market Accounts

Let’s take a look at what there is to love about money market accounts:

• Flexible accessibility: Unlike a CD, you have the ability to deposit or withdraw however much you’d like whenever you’d like up to 6 times a month. Even better, this type of account doesn’t come with a monthly service fee. Bear in mind SCCU Money Market accounts have a monthly low balance fee of $15. 
• High savings yield: Money market accounts offers higher yields for your savings compared to other types of savings accounts.

Cons of Money Market Accounts

Here are a couple of the main cons with money market accounts:

• Lower interest rates: Compared to CDs, interest rates for money market accounts are much lower overall. 
• Higher minimum balances: Whereas with a CD you need $500 to deposit at SCCU, you’ll need at least $2,500 to open a Money Market savings account.

Is it Better to Have a CD or a Money Market Account?

If you’re looking for a higher return on your savings, and you’re free to set funds aside in a “time capsule,” a CD’s a good choice. If you’re looking to earn on your savings at a good rate while enjoying more accessibility and flexibility, then a money market account is a safer bet (as long as the minimum deposit and balance won’t be an issue for you). 

Let’s take a look at an example between the two where you’re looking to earn interest on $5,000 in savings funds (these totals exclude potential taxed amounts on interest earnings):

• Money Market: With 0.05% ^{APY^}, your total balance after 5 years would be $5,012.51. 
• CD: With 2.02% ^{APY^}, your total balance after 5 years would be $5,525.82. 

As you can see, a CD offers a lot more interest earning potential than a money market account, especially at a long term! 

Alternative Savings Options

SCCU offers a variety of savings options that will help your money make money—some are for specific purposes or age groups: 

• SCCU Saving Cents: This is a round-up savings program that helps you save while you spend! Every time you swipe your debit card, the change from your purchase rounds up to the nearest dollar and automatically deposits into your SCCU Saving Cents account. You can link your SCCU Saving Cents account to an eligible SCCU checking account.
• Christmas Club Savings: If you’re tired of your wallet taking such a heavy hit during the holiday season to cover gifts, then you’ll love this type of account. You can deposit as much money as you’d like all year, which will earn a high interest. On October 31, your funds are automatically transferred into your savings account.
• Health Savings Checking: Under a high-deductible plan, you may face some unexpected medical expenses that may be hard to cover. Our Health Savings Checking offers many of the same great benefits as a Free Checking while your money grows thanks to a generous interest rate.
• IRA/IRA CDs: Both IRA and IRA CDs allow you to earn a higher interest on your savings as you plan for retirement with tax advantages. 

Check out all of the savings accounts we offer here. If you’re interested in more ways to save money, this article provides plenty of creative ideas on how to do so.

Which is Safer: CD or Money Market?

In terms of the safety of your money, both CDs and Money Market accounts at SCCU are insured by the National Credit Union Administration (NCUA), so both are low-risk ways to earn money. While you will not lose any of your original principal with either of these accounts, the amount that you earn will depend on the type of account and terms that you choose. Learn more about how to keep your accounts safe here.

Will I Make More Money from a CD or a Money Market Account?

In most cases, you’ll make more money from a CD, especially as CDs typically have higher interest rates. Be sure to take into consideration that your interest earnings from either a CD or a money market account are subject to taxes. For information on your individual tax obligation related to the interest income you receive from a CD or a money market account, consult your tax advisor or financial planner.

Why Choose SCCU for Your Money Market Account or CD?

As a credit union, which is a not-for-profit financial institution and cooperative, we offer competitive CD and money market interest rates. Plus, your CD or Money Market account at SCCU offer additional free benefits, including Online and Mobile Banking with online statements. You can also receive free account alerts to keep track of your accounts.

Becoming a member of SCCU is easy! You just need to live or work in any of these 34 counties and deposit $5 into a Regular Savings account.

If you’d like to talk about which savings strategy is right for your needs, feel free to fill out this simple form, live chat or text us on WhatsApp, or call the office nearest you:

• Brevard: 321-752-2222
• Broward: 954-704-5000
• Miami-Dade: 305-882-5000
• All Other Areas: 800-447-7228