Understanding Certificates: Benefits, Risks, and Early Withdrawal Penalties
- September 18, 2025
- CoVantage Credit Union
When it comes to saving with confidence, Certificates are a go-to for many. They offer a predictable return, low risk, and a clear timeline. But what happens if you need to tap into those funds before the term ends? Let’s break it down.
What’s a certificate, anyway?
A term share certificate, commonly known as a Certificate of Deposit (CD), is a financial product that allows members to deposit a fixed amount of money for a specified period -- or “term,” -- in exchange for a guaranteed interest rate. At CoVantage Credit Union, certificates can be opened with a minimum deposit ranging from $1,000 to $5,000, with term options spanning from three months to five years.
Unlike regular savings accounts, certificates typically offer higher dividend rates because the money is locked in for the agreed term, and early withdrawals often incur penalties. At the end of the term, known as the maturity date, the depositor receives the original amount plus the interest earned.
Why Certificates Work in Personal Finance
A Certificate offers several benefits as a personal financial product. One of the primary advantages is its predictable return. Certificates typically offer fixed dividend rates, allowing savers to know exactly how much they’ll earn over the term. This makes them a low-risk investment, ideal for savers or those looking to preserve capital. Additionally, certificates are insured by the NCUA at credit unions (or by FDIC at banks) up to applicable limits, providing a layer of security not found in many other investment vehicles. For individuals with specific savings goals and a clear timeline, Certificates can be a smart, stable component of a diversified financial strategy.
The Catch: What That Early Withdrawal Penalty Looks Like
Life happens. Emergencies arise. Or maybe a better investment opportunity comes along. If you withdraw from a Certificate before it matures, that’s considered an early withdrawal, and it usually comes with a penalty. At CoVantage Credit Union, all certificates come with a standard early withdrawal penalty of 90 days’ worth of dividends. This means that if you need to access your funds before the certificate matures, you’ll forfeit interest equivalent to three months. Notably, if the certificate is closed within the first 90 days of opening, the penalty may even reduce the principal amount. Additionally, CoVantage does not allow partial withdrawals, if you need to access your money early, the entire certificate must be closed. These policies are designed to encourage savers to commit to the full term of their investment while ensuring fair terms for early access.
Example:
Let’s say you have a 13-month certificate with a $20,000 balance at CoVantage Credit Union, and the certificate had a 4% annual dividend rate, the early withdrawal penalty—based on 90 days of interest—would be approximately $197.26.
Final Thoughts: Is It Worth It?
Certificates are designed for stability, not flexibility. If you think you might need access to your funds, consider a shorter-term certificate or a more liquid savings option like a money market account. But if you’re in a pinch or spot a better opportunity, early withdrawal is possible, just be sure you understand the cost.
Pro tip: Before committing to a certificate, ask yourself: “Can I leave this money untouched for the full term?” If the answer is yes, you’re likely in a good spot to benefit from the steady growth a certificate offers.
What’s a certificate, anyway?
A term share certificate, commonly known as a Certificate of Deposit (CD), is a financial product that allows members to deposit a fixed amount of money for a specified period -- or “term,” -- in exchange for a guaranteed interest rate. At CoVantage Credit Union, certificates can be opened with a minimum deposit ranging from $1,000 to $5,000, with term options spanning from three months to five years.
Unlike regular savings accounts, certificates typically offer higher dividend rates because the money is locked in for the agreed term, and early withdrawals often incur penalties. At the end of the term, known as the maturity date, the depositor receives the original amount plus the interest earned.
Why Certificates Work in Personal Finance
A Certificate offers several benefits as a personal financial product. One of the primary advantages is its predictable return. Certificates typically offer fixed dividend rates, allowing savers to know exactly how much they’ll earn over the term. This makes them a low-risk investment, ideal for savers or those looking to preserve capital. Additionally, certificates are insured by the NCUA at credit unions (or by FDIC at banks) up to applicable limits, providing a layer of security not found in many other investment vehicles. For individuals with specific savings goals and a clear timeline, Certificates can be a smart, stable component of a diversified financial strategy.
The Catch: What That Early Withdrawal Penalty Looks Like
Life happens. Emergencies arise. Or maybe a better investment opportunity comes along. If you withdraw from a Certificate before it matures, that’s considered an early withdrawal, and it usually comes with a penalty. At CoVantage Credit Union, all certificates come with a standard early withdrawal penalty of 90 days’ worth of dividends. This means that if you need to access your funds before the certificate matures, you’ll forfeit interest equivalent to three months. Notably, if the certificate is closed within the first 90 days of opening, the penalty may even reduce the principal amount. Additionally, CoVantage does not allow partial withdrawals, if you need to access your money early, the entire certificate must be closed. These policies are designed to encourage savers to commit to the full term of their investment while ensuring fair terms for early access.
Example:
Let’s say you have a 13-month certificate with a $20,000 balance at CoVantage Credit Union, and the certificate had a 4% annual dividend rate, the early withdrawal penalty—based on 90 days of interest—would be approximately $197.26.
Final Thoughts: Is It Worth It?
Certificates are designed for stability, not flexibility. If you think you might need access to your funds, consider a shorter-term certificate or a more liquid savings option like a money market account. But if you’re in a pinch or spot a better opportunity, early withdrawal is possible, just be sure you understand the cost.
Pro tip: Before committing to a certificate, ask yourself: “Can I leave this money untouched for the full term?” If the answer is yes, you’re likely in a good spot to benefit from the steady growth a certificate offers.