What is a Certificate and How Does it Work?
Posted: July 2, 2025
Updated: July 2, 2025
When you look at the big picture for your savings, what do you see? Is it on track, or could it use a boost? Whether your goals are big or small, there are plenty of options to help you get there. You can always have a traditional savings account that you can add to over time, but what if you had something better?
By something better, we mean a certificate! These accounts are a great option to help you reach specific goals and don’t require constant attention. But what is a certificate, how does it work and how can it save you more? Let’s dive into this unique savings account, and see if it can help you reach your goals!
What is a Certificate?
A certificate is a deposit account that enables guaranteed growth for your money with a rate that won’t change over a set amount of time. These accounts are a great choice for someone who doesn’t need to make consistent withdrawals from their account and is saving for one or multiple goals.
Note: If your financial institution is a traditional bank, this account will be called a CD (certificate of deposit). If you bank with a credit union, this account type is called a certificate account, or certificate for short.
Let’s compare this to another account, like a high-yield savings. When you put funds into a high-yield savings or a certificate, you’ll have guaranteed growth due to the higher rate that is associated with them. The difference is, when you open a certificate, your money is locked in and grows while you wait. Think of this as an autopilot function for your savings.
How a Certificate Works
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Step 1: Term Length
First, you’ll pick a term length for your certificate. This could be anywhere from three months to five years. The rate you get will depend on the term you choose. View our rate table to get an idea of how this works. Keep in mind, certificate accounts have early withdrawal penalties. It’s best to only commit funds that you won’t need until the term ends. That way, you can avoid fees for pulling your money out early. -
Step 2: Deposit and Open
Next, you can open your account by depositing the minimum amount of funds needed, or as much as you’re comfortable putting in. You can open a certificate at Landmark with as little as $500. -
Step 3: Set and Forget
After you’ve locked in your rate, your funds will grow over the life of the term you chose. At this point your rate is fixed, and there is no need to monitor any rate changes or market conditions. This is the autopilot feeling we mentioned! -
Step 4: Get Rewarded
Last but not least, your accounts term will end. At this point you have a choice: see how much your account has grown and let it ride by renewing it for a new term and rate, or you can withdraw your funds for use as you see fit.
What are the Benefits of a Certificate?
High Dividend Rates: Dividend rates for your certificate will vary depending on what term you choose. However, on average a certificate can have a dividend rate much higher than most traditional savings accounts, making it a great option to save for long-term goals. Once you open your account, your rate is locked in and won’t change. Since your rate is locked, if rates drop in the market you won’t have to worry. Your fixed rate will stay the same for the entire term.
Note: Like the different naming convention of certificate vs. certificate of deposit (CD), a certificate with a credit union uses the term “dividend” rather than “interest” for its rate. They are nearly the same concept, except interest is used by banks, and dividends are used by credit unions.
Credit unions are not-for-profit financial cooperatives that return profits to their members. Dividends are payments made by a credit union to its shareholders. In this case shareholders are members.
Guaranteed Return: Certificates don't come with the risks associated with investing in the stock market or other volatile options. That means no risk, only rewards! With a certificate, your money is kept safe and in a growing environment.
Federally Insured: When an account is federally insured by the National Credit Union Association (NCUA), the funds are protected up to $250,000 on a per account owner basis. If you have a joint account, both individuals will be insured up to $250,000, totaling a full $500,000. All Landmark accounts, including certificates, are insured by the NCUA.
Why are Certificates Popular?
Certificates are popular because they offer a safe and predictable way to grow your savings. With a fixed interest rate and a timeline that you can pick and choose, they are a great option when saving for things like vacations, down payments, retirement or big-ticket items. On top of that, you can also create a savings strategy with multiple certificates to maximize your potential gain!
What Certificate Strategies Work Best?
There are a lot of different ways to boost your savings with certificates. If you feel confident in your finances, you could test out a certificate strategy to maximize your long-term savings. Keep in mind, these require focus and should only be used once you’re comfortable opening multiple accounts.
If you want to learn more, check out our article Top 3 Certificate Saving Strategies–How They Work, for an in-depth breakdown of each strategy.
Top Certificate FAQs
How Do I Open a Certificate?
Opening a certificate is a simple process! You can open one online or visit a branch to open an account. Easily open a certificate today; it only takes $500 to get started.
What Do You Need to Open a Certificate?
To open a certificate at Landmark, all you need is a $5 savings account and the minimum deposit. That $5 savings account is what makes you a Landmark member. Becoming a member is your ticket to the benefits, great services and other account perks Landmark has to offer.
You’ll have to keep this account open throughout the life of any accounts you have at Landmark. But once that’s set up, you’re good to go! Now you just need the minimum deposit of $500 to open a certificate, and you’re on your way to new savings potential.
If you’re already a Landmark member, it only takes 60 seconds to open a certificate account through Digital Banking!
What Does APY Mean?
Certificate rates follow APY. This stands for Annual Percentage Yield. Essentially, this is your annual rate after it has compounded. What does compounding mean? Basically, with monthly compounding interest, you make money on your money. Your initial amount earns interest, and that earned interest gets added to your original amount. Now, the next time your interest is calculated, it’s based off that bigger amount that you have in the account.
Compounding Example:
Let’s say you opened a year long certificate with a deposit of $1,000 at 5% APY compounded monthly. Here are the basic steps on how your money will grow.
Step 1: You earn 5% annually, but since it's compounded monthly, you earn a small number of dividends each month. After the first month, your balance is slightly more than $1,000.
Step 2: Dividends are now calculated on the new balance with added dividends from the previous month. So, you earn more in month two than you did in month one.
Step 3: This process happens each month. Every month, the dividends you earn are added to your balance, and the next month, you earn dividends on the new, higher balance.
With this formula, after 12 months your balance will be: $1,051.16
| Monthly Starting Balance | Monthly Dividend | Ending Balance |
| $1,000 | $4.17 | $1,004.17 |
| $1,004.17 | $4.18 | $1,008.35 |
| $1,008.35 | $4.20 | $1,012.55 |
| $1,012.55 | $4.22 | $1,016.77 |
| $1,016.77 | $4.24 | $1,021.01 |
| $1,021.01 | $4.25 | $1,025.26 |
| $1,025.26 | $4.27 | $1,029.53 |
| $1,029.53 | $4.29 | $1,033.82 |
| $1,033.82 | $4.31 | $1,038.82 |
| $1,038.13 | $4.33 | $1,042.46 |
| $1,042.46 | $4.34 | $1,046.80 |
| $1,046.80 | $4.36 | $1,051.16 |
Certificate Calculator
Try using our certificate calculator to get an idea of how your funds would grow over time.
Are Certificates Taxed?
Yes, certificates fall into the category of taxable income. The dividends you earn on a certificate are taxed the same as your regular income. It is taxed at the same rate and in the same year that you earned it with a 1099-INT tax form. If you earned more than $10 of dividends on your certificate, you would receive a 1099-INT form from your financial institution. Keep in mind, you will pay taxes on the dividends earned, not the money you originally deposited.
If you have a certificate that spans multiple years, you will owe tax on the dividends paid in each of the years that you hold the certificate until it reaches maturity.
Note: If you open an IRA certificate, tax will be treated differently. Earnings on these accounts will grow tax deferred.
Comparing Certificates to Other Savings Options
Where you choose to put your money is completely up to you. Like any other savings account, a certificate lets you put money away for a set period. But there are other types of accounts that can help you grow your cash flow.
Money Market vs. Certificate
Money market accounts have some similarities to certificates. Both offer higher interest rates once you meet the minimum deposit to open the account. However, flexibility is the name of the game with money markets. These accounts allow you to make multiple deposits or withdrawals with no penalties.
While both certificates and money markets offer higher rates, money market rates fluctuate with the market, making them less desirable for some people. Additionally, you will need to reach a higher minimum balance in your account to start earning with a high rate. These accounts are based on a tiered system. That means your rate can increase as you add more and more money to the account.
Savings Bonds vs. Certificate
Both bonds and certificates have the same focus. When you open a bond, you are essentially lending money to the government, and they agree to pay you back your investment plus interest after maturity. Sounds similar to a certificate, right? So, what makes them different?
The key differences between the two are how bonds react to rates, the length of the term and the ability to add additional funds. Bonds are a great choice if you’re planning far into the future, like for a child’s college fund.
You could open a bond that grows for five years or 20 years and make consistent deposits until it matures. But when interest rates rise, bond prices decrease, making the bond lose market value.
Traditional Savings vs. Certificate
When using a traditional savings account, you can access your money anywhere at any time. While you may have some limitation with the number of transfers that you can use or withdrawals each month, a traditional savings account is always a reliable option.
The average savings account has a much lower interest rate than a certificate, money market or bonds. Additionally, this rate can fluctuate with the current market. If you’re looking for steady growth, a traditional savings may not be the best option.
| Account Type | Rate | Minimum to Open | Term | Contribution |
| Certificate | Fixed after opening | $500 minimum to open | Terms from 3 month to 5 years | Cannot contribute until maturity |
| Money Market | Variable with the market | $2,500 or more minimum | No terms | As much and as often as you want to |
| Savings Bonds | Variable with the market | Can vary with paper or electronic, minimums include $25-$10,000 to open | Varies, years to decades | As much and as often as you want to |
| Traditional Savings | Variable with the market | $5 minimum to open | No terms | As much and as often as you want to |
Is a Certificate Right for You?
Need a secure way to grow your savings? Why not a certificate! They’re a smart option that provide guaranteed returns with no risk. Plus, you can use unique strategies to boost your savings potential.
At Landmark, we offer competitive rates to help you reach your goals faster. If you’re saving for a big purchase, vacation or just want to pad your savings, a certificate is a great choice to help you get there. Open an account online or at a branch today!