9-Month CD Special

Withdrawing money from a 9-month CD before the term ends typically incurs an early withdrawal penalty. At People Driven Credit Union, the Early Withdrawl Penalty is a Loss of 90 days of interest for withdrawing funds early.

Yes, your money is safe in a 9-month CD. At People Driven Credit Union, our CDs are insured by the NCUA (National Credit Union Administration) up to $250,000 per depositor.

The difference between the Dividend Rate and APY (Annual Percentage Yield) lies primarily in considering compounding. Here’s a breakdown:

Interest Rate

• Definition: The interest rate is the nominal rate at which interest is paid on the principal amount.
• Compounding: It does not account for how often interest is compounded. It is simply the rate without considering the effects of compounding within the period.
• Usage: Often quoted as an annual rate, but it can be applied over different compounding periods (monthly, quarterly, etc.).

Dividend Rate

• Definition: Similar to the interest rate, but typically used by credit unions or certain investment accounts to describe the rate paid on deposits or investments.
• Compounding: Like the interest rate, it does not account for the compounding frequency.

APY (Annual Percentage Yield)

• Definition: APY reflects the total amount of interest earned on an account in a year, accounting for the effect of compounding interest.
• Compounding: It includes the effects of compounding interest. Which means it shows the real return on investment or savings over a year.
• Formula: The formula for APY is:

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

  Where r is the nominal interest rate, and n is the number of compounding periods per year.

Dividend Rate vs APY Example

Interest Rate/Dividend Rate: If a savings account offers a 5% interest rate compounded monthly, the nominal rate is 5%. APY: When considering the monthly compounding, the same account will have an APY slightly higher than 5% because the interest earned each month also earns interest in subsequent months.

Key Differences

• Compounding Effect: APY incorporates the effect of compounding, whereas the nominal interest/dividend rate does not.
• True Earnings: APY provides a clearer picture of the actual annual earnings from an account or investment.
• Comparison: APY is a better metric for comparing different financial products as it standardizes the impact of compounding across different offers.

In summary, while the interest rate or dividend rate gives you an idea of the annual rate of return without compounding, the APY gives you the actual yearly return, considering the compounding of interest.

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.

A 9-month CD works as follows:

1. 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.
2. 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.
3. 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.
4. Interest Accumulation: Interest is typically compounded and credited to your account at regular intervals, such as monthly or quarterly.
5. Maturity: At the end of the 9-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.
6. Early Withdrawal Penalty: If you need to access the money before the 9-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.
7. 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 9-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.

A 9-month CD (Certificate of Deposit) is a type of savings account offered by banks and credit unions. Here are the key characteristics:

1. Fixed Term: It has a maturity period of nine months, during which the deposited money is locked in.
2. Interest Rate: Typically offers a fixed interest rate generally higher than regular savings accounts.
3. Minimum Deposit: Often requires a minimum deposit amount to open the account.
4. Early Withdrawal Penalty: If you withdraw the funds before the 9-month term ends, you usually incur a penalty, a portion of the interest earned, or a specified fee.
5. 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 9-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.