What Is a Small Saver Certificate?

A small saver certificate (SSC) is a deposit savings account with a small minimum balance requirement or no minimum at all. Children ages 17 and under, as well as young adults, tend to invest in them. The certificates pay either a fixed rate of interest for a specific term or a variable rate that changes based on a benchmark such as Libor. A penalty applies if funds are withdrawn before maturity.

Banks tend to offer SSCs in small denominations, such as $100, $200, or $500. The annual percentage yield (APY) depends on the maturity term of the particular SSC. Interest on Small Saver Certificates often is compounded monthly.

Understanding Small Saver Certificate (SSC)

A small saver certificate (SSC) usually has a term of three, six, 12, 18 or 24 months. Some are slightly longer term, with 36, 48 and 60-month term maturities.

SSCs began in the early 1980s as a way to provide banks and thrifts with deposit vehicles with 18-month maturities. This helped them compete with 18-month money market funds that offered higher yields than shorter-term certificates. Moreover, it encouraged individuals to start saving for the first time with very small amounts.

SSCs are not particularly popular, but some credit unions still offer them. Banks and credit unions sometimes offer comparable rates versus their certificates of deposit, with many savings-account-like features. Once the account is opened, investors generally add to their SSC accounts when they see fit. Maturities tend to renew automatically into a similar certificate.

Banks and credit unions encourage holders of Small Saver Certificates to set up recurring deposits, usually on a bi-weekly or monthly basis. Many charge no monthly fees and, like savings accounts, Small Saver Certificates are federally insured.

In addition, some Small Saver Certificates come with checking-account-like features, such as mobile and online banking that allows easy investing, as well as paperless statement and photo deposits.

Pros and Cons of the Small Saver Certificate

Small Saver Certificates help young people working their very first job get used to saving for set terms. Some who start saving with this vehicle eventually move to investing in certificates of deposit and other types of investments with higher minimums.

For this reason, Small Saver Certificates allow banks to groom prospective long-term customers early. Some persuade young investors to watch interest rates, for example, giving them the option to boost, or step up, the interest rate of a certificate once during a given term. The downside, however, is that these certificates purposely start with a lower rate than they would otherwise. Also, it’s important to mind Small Saver Certificates that automatically renew, as some may do so at lower rates.

Some Small Saver Certificates are more competitive than others, and pay rates similar to regular CDs with similar maturities. However, it’s sometimes hard to comparison shop, as not all banks and credit unions offer these certificates.