What Is a Share Certificate?
A share certificate is a CD at a credit union. It works the same way a bank CD does.
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Key takeaways:
A "share certificate" is the credit union equivalent of a bank certificate of deposit (CD).
Share certificates have a fixed annual percentage yield (APY) for a fixed period.
Share certificates can offer better rates than "share accounts," which correspond with bank savings accounts.
A share certificate can be a good option for earning interest on cash you'll want to use in the future.
Share certificates: Credit union version of CDs
A share certificate is a type of savings account with a fixed APY for a fixed period. Credit unions offer share certificates. They're equivalent to certificates of deposit (CDs), which you can get at banks. Think of a share certificate as a credit union CD.
APY and dividend rate aren’t the same, but you might see both rates on a credit union’s website. APY is the rate of return that includes compounded interest, while the dividend rate (or “interest rate” at banks) is the rate of return before compounding. When estimating returns, CD calculators may ask for APY, while standard compound interest calculators may require dividend rate and compound frequency.
» COMPARE: Credit unions vs. banks
Share certificates vs. share accounts
While share certificates are equivalent to CDs, share accounts at a credit union are similar to savings accounts at a bank. Here are some critical differences between share certificates and share accounts:
Higher APYs. Share certificates usually offer a higher APY than share accounts, but a share certificate requires that you keep your money in the account for the entire period you selected.
Fixed APYs. For that period, your share certificate will earn a fixed APY. On the other hand, the APY of a share account can change from time to time, so the rate of earnings (called "dividends") you get can change.
No access to funds. If you withdraw your money from a share certificate before the end of its fixed term, you may have to pay a penalty. With a share account, you can add or withdraw funds when you need.
» Want the highest APY? See our list of the best share certificate rates
Why do credit unions call it a share certificate?
Credit unions use the term "share" because members (that is, depositors) at a credit union are part owners of the institution. Just as stockholders have a share of stock in a company, credit union members have share accounts or share certificates in a credit union. Your earnings from a share certificate are called "dividends," equivalent to "interest" earned from a bank.
» MORE: Learn how to join a credit union
In the context of investing, a share certificate is a legal document that proves you own some stock (that is, a share of ownership) of a company. The company issues it to the shareholder; a "share certificate" is synonymous with a "stock certificate" in investing terms.
How do share certificates work?
A share certificate works this way: You choose a term (length of time) to open and deposit money into the account. A minimum opening deposit is often required.
Once you've deposited funds and the term begins, you cannot add or withdraw any funds until the term has ended (or "matured"). You may have to pay a penalty if you withdraw your money before the certificate term ends.
While your money is kept with the credit union, the credit union will pay you dividends. Dividends may be compounded daily or monthly (learn more about compound earnings).
When your share certificate matures at the end of the term, you can either roll your certificate funds into another share certificate (using the CD ladder strategy), transfer your money to a checking or share account, or withdraw your money.
» MORE: Learn more about how CDs and share certificates work