When you’re saving for big expenses or trying to reach a savings goal, share certificates, sometimes just called “certificates,” can be excellent choices for stashing what you already have. With yields typically exceeding those of traditional savings accounts, they can be perfect for holding funds from a few months up to a few years.

Share certificates for short-term savings

Certificates are useful savings strategies that lock deposited money into accounts for predetermined term lengths. They offer:

• Higher yields than most savings and money market accounts
• NCUA insurance on deposits up to $250,000
• Predictable growth until the maturity date

Because there is almost zero risk of losing either the principal or the promised dividends, certificates offer predictability and security, making them great for holding money that’s earmarked for spending within the next five years or so. For example, they could be part of an overall savings strategy for things such as:

• Down payments on a home or a car
• Home renovations
• Tuition
• Any other foreseeable expense

Let’s say you have $5,000 saved for new furniture, but you’re not planning on buying that furniture for another year. In this case, it might make sense to open a certificate with a one-year term. After the maturity date, you can cash in your principal plus the extra year’s worth of earned dividends.

Keep in mind that once the certificate is created you should plan to hold the money until the maturity date. Withdrawing from a certificate prior to the end of its term could result in penalty fees.

Share certificates for long-term investments

Because certificates typically have term options that are less than ten years, a single certificate wouldn’t work well in a longer term plan, but that doesn’t mean certificates don’t have a place for your longer term goals.

However, most financial advisors probably wouldn’t recommend relying on certificates. They’re not great retirement plans. The dividends on these types of savings typically don’t compare well to the long-term yields we usually see in the stock market. Over the long run, the stock market almost always does better. Certificates don’t hold up that well to inflation over longer periods of time either.

The general rule of thumb is if you’re going to spend your savings sometime between the next few months and the next three to five years, certificates are good choices. If you think you won’t use the money in the next five years, you might have better options.

If you’re considering using certificates as part of a long-term investment strategy, you may want to talk to a financial advisor to work out the details and be certain it’s the best choice for you.

The value of a ladder — high yields plus flexibility

Once you get comfortable with the idea of a certificate, it’s time to get strategic. One way to do that is by creating a ladder.

Laddering with certificates involves opening multiple certificates with different maturity dates. The goal is to have a portion of your funds earning the highest yields you can get, which are usually associated with longer term certificates, while putting the rest of your funds in staggered, shorter term accounts, creating regular intervals of maturity dates and access to your funds.

The beauty of the ladder is its ability to provide more flexibility than simply lumping all of your money into one long-term certificate. Staggered maturity dates ensure you’ll have regular opportunities to access some of your money without penalties. At each interval, you’ll be able to cash in the principal and dividends or you could continue your savings and earnings by opening new long-term certificates.

If you continue saving and gradually replace short-term certificates with long-term certificates, you’ll eventually have all of your funds held for longer durations, ideally making peak yields, but with a continued cadence of maturity dates that allow periodic access to some of your funds should you need it.