16-month CD Special

A 16-month CD (Certificate of Deposit) is a type of savings account offered by banks and credit unions. Here are the key characteristics:

• Fixed Term: It has a maturity period of nine months, during which the deposited money is locked in.
• Interest Rate: Typically offers a fixed interest rate generally higher than regular savings accounts.
• Minimum Deposit: Often requires a minimum deposit amount to open the account.
• Early Withdrawal Penalty: If you withdraw the funds before the 16-month term ends, you usually incur a penalty, a portion of the interest earned, or a specified fee.
• FDIC Insured: In the United States, CDs from credit unions are usually insured by the National Credit Union Administration (NCUA) up to $250,000 per depositor per credit union.

A 16-month CD can be a good option if you have a specific short-term savings goal and want to earn a higher interest rate without taking on much risk.

A 16-month CD works as follows:

• Opening the CD: You deposit a lump sum of money into the CD account. The amount often needs to meet the bank or credit union's minimum deposit requirement.
• Fixed Term: The money is committed to the CD for a fixed term of nine months. During this period, you cannot add to or withdraw from the principal amount without incurring penalties.
• Interest Rate: The bank or credit union pays you a fixed interest rate on the deposited amount for the entire term. This rate is usually higher than that of a regular savings account because the bank can use your money for a predictable period.
• Interest Accumulation: Interest is typically compounded and credited to your account at regular intervals, such as monthly or quarterly.
• Maturity: At the end of the 16-month term, the CD matures. You then have a few options:
  • Withdraw the funds: You can take out your initial deposit plus the interest earned.
  • Renew the CD: You can roll over the funds into a new CD, either for the same term or a different one, possibly at a new interest rate.
  • Transfer the funds: You can transfer the money to another account.
• Early Withdrawal Penalty: If you need to access the money before the 16-month term ends, you will likely face an early withdrawal penalty. This penalty varies by institution but generally involves forfeiting a portion of the interest earned.
• FDIC/NCUA Insurance: If the CD is held at a bank, it is insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per depositor per bank. If held at a credit union, it is insured by the NCUA (National Credit Union Administration) with the same coverage limits.

A 16-month CD can be a suitable option for short-term savings goals, offering a balance between earning a higher interest rate and having your money tied up for a relatively short period.

Yes, your money is safe in a 16-month CD. At People Driven Credit Union, our CDs are insured by the NCUA (National Credit Union Administration) up to $250,000 per depositor.

APY stands for Annual Percentage Yield. It is a measure of the total amount of interest earned on an account based on the interest rate and the frequency of compounding over a year. APY is a useful metric for comparing the annual earnings on different savings products, such as savings accounts, CDs, and money market accounts, because it standardizes the effect of compounding. Key Points About APY

• Includes Compounding: APY accounts for how often interest is compounded (e.g., daily, monthly, quarterly), which can significantly affect the total interest earned over time.
• Comparison Tool: APY provides a standard way to compare the annual interest earnings of different savings products, regardless of how frequently interest is compounded.
• Formula: The formula for calculating APY is:

  APY = (1 + r/n)^n - 1

  where r is the nominal interest rate (expressed as a decimal), and n is the number of compounding periods per year.
• Higher APY: A higher APY indicates that you will earn more interest on your money over a year, assuming the same principal amount.

Example For example, if a savings account offers an interest rate of 5% compounded monthly, the APY would be higher than 5% due to the effect of monthly compounding. This makes APY a useful metric for comparing the real return on different financial products.

You will receive a notice in the mail 30 days before the maturity date of your CD.

When comparing savings accounts, money market accounts, certificates, and other deposit products, you may see both a dividend rate and an Annual Percentage Yield (APY). These numbers are related, but they are not the same.

The dividend rate is the base rate used to calculate your earnings. APY shows how much you could earn over a year when the effect of compounding is included. Understanding the difference can help you compare accounts more accurately.

What is an interest rate or dividend rate?

An interest rate is a percentage used to calculate interest earned on a deposit or charged on a loan. Banks commonly use the term "interest rate" for deposit accounts.

At a credit union, you will commonly see the term dividend rate for savings accounts, money market accounts, and certificates. The dividend rate is the annual rate used to calculate dividends on the account and does not reflect the effect of compounding.

For example, if a credit union savings account has a 3.00% dividend rate, that 3.00% is the base rate used to calculate the dividends your balance earns.

What is Annual Percentage Yield (APY)?

Annual Percentage Yield, or APY, shows the amount an account can earn over a year based on the dividend or interest rate and the effect of compounding.

Compounding occurs when dividends that have already been credited to your account begin earning additional dividends. Depending on the account, dividends may compound daily, monthly, or at another frequency specified in the account disclosure.

Because APY accounts for compounding, it is usually more useful than the dividend rate when comparing deposit accounts from different financial institutions.

Dividend rate vs. APY

Here is the easiest way to think about the difference:

• Dividend or interest rate: The base annual rate used to calculate earnings. It does not reflect the effect of compounding.
• APY: The annualized yield that reflects the rate and the effect of compounding, based on the applicable APY calculation.

For example, an account with a 3.00% dividend rate compounded monthly would have an APY of approximately 3.04%. The dividend rate stays at 3.00%, but compounding increases the annual yield.

Why should you use APY when comparing savings accounts?

APY gives you a standardized way to compare the earning potential of savings accounts, money market accounts, and certificates.

Two accounts can have the same dividend rate but different APYs if their compounding terms differ. Looking at APY makes it easier to compare accounts using the same annual measurement.

Dividend rate vs. APY example

Both accounts have the same 3.00% base rate. Because Account B compounds monthly, its APY is slightly higher. This illustrates why APY is useful when comparing deposit accounts.

What is the difference between APY and APR?

APY and APR measure two different things.

APY is used with deposit accounts and helps you compare how much your money may earn. Annual Percentage Rate (APR) is used with loans and other forms of credit and helps you compare borrowing costs. Depending on the type of loan, APR may include the interest rate and certain fees or finance charges.

In simple terms, use APY when comparing deposit accounts and APR when comparing loans.

Frequently asked questions

How often are dividends compounded?

The compounding frequency depends on the account. Dividends may compound daily, monthly, or at another frequency. Review the account's disclosures for the specific compounding and crediting terms.

Why is the APY higher than the dividend rate on a certificate?

The dividend rate is the base annual rate used to calculate earnings. APY reflects the annualized yield after taking applicable compounding into account. When dividends compound during the year, the APY may be higher than the stated dividend rate.

What is the difference between APY and APR?

APY applies to deposit accounts and measures annual earnings based on the account's rate and applicable compounding. APR applies to loans and measures the annual cost of borrowing based on the interest rate and applicable finance charges. Use APY to compare deposit products and APR to compare loans.

Does compounding frequency make a difference?

Yes. More frequent compounding can increase the amount an account earns because previously credited dividends can begin earning additional dividends sooner. The difference may be small over a short period, but it can become more noticeable over time or with larger balances.

When comparing accounts, should I look at the dividend rate or APY?

APY is generally the better number for comparing the earning potential of deposit accounts because it provides a standardized annual measurement that accounts for applicable compounding.

Explore savings options at People Driven Credit Union

People Driven Credit Union offers savings accounts, money market accounts, certificates, and other options designed to help members save toward their financial goals.

Explore our Member Savings Account, compare our savings and certificate options, or open an account.

A Certificate of Deposit is a secure and reliable savings tool that offers higher interest rates in exchange for committing your funds for a fixed period. It's an excellent option for those looking to achieve specific financial goals with minimal risk. Key Features of a Certificate of Deposit (CD):

• Fixed Term: CDs have a specified term or maturity date, which can range from a few months to several years. Common terms are 6 months, 1 year, 2 years, or 5 years.
• Interest Rate: CDs typically offer a higher interest rate than regular savings accounts. The rate is fixed for the duration of the term, providing a predictable return on investment.
• Minimum Deposit: Many CDs require a minimum deposit to open, which can vary depending on the financial institution and the specific CD product.
• Early Withdrawal Penalties: Withdrawing funds from a CD before it matures usually incurs a penalty, which can reduce or negate the interest earned. Some CDs offer more flexible terms with lower penalties or no penalties for early withdrawal, but these often come with lower interest rates.
• FDIC/NCUA Insurance: CDs from banks are typically insured by the Federal Deposit Insurance Corporation (FDIC), and CDs from credit unions are insured by the National Credit Union Administration (NCUA), up to the maximum limit allowed by law.