Investment Accounts

Just the name. You may have heard of a CD, certificate of deposit, or share certificate – it’s called many things, but no matter the name, a certificate is a great tool to have in your financial toolkit. A certificate is a type of savings account that can hold a fixed amount of money for a chosen period of time. Just think of it as an account where the financial institution pays you interest in exchange for the guarantee that you won’t withdraw your cash until a specific amount of time has passed, such as three months, five years, or nearly any term in between.

A certificate offers the benefit of a higher interest rate on your deposits compared to a regular savings account, and it works for saving for short-medium term goals.

Many people don’t know they can use certificates to their advantage by creating a “ladder.” To complete a ladder, look at how much you can invest in certificates. For example, if you have $10,000 to invest, you may put 25% in a 60-month certificate, another 25% in a 36-month certificate, and so on.  Once each certificate matures, you reinvest this money into additional certificates of various lengths, depending on the interest rates in the market at that time.

Suppose the available annual percentage yield (APY) for certificates decreases substantially. In that case, you can take some of the money once the term is up and place it into a savings account, Roth IRA, or any other place of your choosing. You can reinvest that money in a certificate later when rates have risen again.

A certificate ladder is a strategy for saving that allows you to earn significant interest without tying up a large sum of money indefinitely. It gives you more flexibility with your certificates by allowing access to some of your investment money sooner with your shorter-term certificates.

Additionally, if you’re worried about APY fluctuating too much, a ladder can be a great strategy to allow you to take advantage of higher APY rates with your longer certificates. At the same time, you can reinvest your shorter-term certificates if the APY increases or remove the funds if the APY decreases. It’s also safer than other saving strategies because the financial institution insures your certificates.

An investment savings account, also known as a money market account or a high-yield savings account, is a type of financial institution account that typically offers a higher interest rate in exchange for higher minimum deposits or other restrictions, such as withdrawal limits. These accounts can be a good option for people who want to earn a higher return on their money without taking on too much risk.

The best investment accounts depend on your savings goals, time horizon, and risk tolerance. For example, a couple in their retirement years may be better off with guaranteed returns from low-risk investments, while a young person with extra cash on hand may benefit from higher-risk investments that have the potential for higher returns over the long term. It’s important to work with a financial advisor to determine the investment strategy that is right for you based on your income level, cash flow, and other factors.

An IRA, or individual retirement account, is a type of investment account that offers tax-deferred or tax-free savings for retirement. IRA contributions may be tax-deductible and have initial investment requirements, but they also come with limits on how much you can contribute and when you can make withdrawals. A brokerage account, on the other hand, is a type of investment account that allows you to buy and sell stocks, securities, and mutual funds more freely. Brokerage accounts are typically taxed on interest, dividends, and capital gains annually, and there are no limits on how much you can contribute.

Yes, there is a difference between saving and investing. Saving refers to setting aside money for the future, while investing involves putting money into different accounts or investment products, such as stocks, certificates, or property, that have the potential to earn interest or dividends.

If you’re just starting out with investing, it’s important to consider your comfort level with risk. Low-risk products, such as high-yield savings accounts, may offer a lower return on your investment but often come with some form of guarantee, while higher-risk products, such as individual stocks or riskier investment firms, may have the potential for higher returns but also come with a higher risk of losing money in the short or long term. As a beginner, it may be a good idea to start with low-risk investments and gradually increase your risk tolerance as you become more comfortable with the investment process. It’s always a good idea to work with a financial advisor to determine the best investment strategy for you based on your income level, cash flow, and other factors.