Share Certificate vs. CD: What’s The Difference?

Learn the similarities and differences between a share certificate and a certificate of deposit so you can make an informed decision about your finances.

If you’re shopping around for financial products, you may have come across two similar things with different names: Certificates of Deposit (CD) and Share Certificates.

Share Certificate vs. CD

Share certificates and CDs are smart ways to put money into an account to save for later and earn interest. The main difference is that a share certificate is unique to credit unions, while banks offer a CD. Both typically earn a higher interest rate than a typical savings account.

Share Certificates

Share certificates are only offered by credit unions, and help you earn higher interest payments (or yields) on your savings account. Many credit unions, like A+FCU, offer certificates for six to 60 months, with varying minimum balances and annual percentage yield rates.

The National Credit Union Administration (NCUA) insures deposits at credit unions, so users of share certificates can rest easy knowing that their investment is protected.

Certificate Of Deposit

On the other hand, banks offer a certificate of deposit (CD) that pays interest for a set period. When you open a CD, you generally agree to leave your deposit in the account for a specific period, ranging from a few months to a few years. It is a low-risk investment but does have a penalty if you withdraw your money before the term. Like a share certificate, there are varying minimum deposit requirements.

Similarities

Both CDs and share certificates offer long-term solutions to making the most of your money; both have similar terms; and both are considered to be safe bets for your cash.

Since share certificates and CDs are similar in many ways, it’s helpful to understand that they both have a fixed term length, a fixed, higher interest rate, minimum deposit requirements, and early withdrawal penalties.

Differences

CDs and Share Certificates have two distinct differences. CDs are offered by banks and share certificates by credit unions. Another key difference is that share certificates at a credit union, focus on earning dividends on your money. Dividends are a percentage of a credit union’s profits paid to its members. With a CD at a bank, you earn interest. Essentially, interest is the money a bank pays you to use your money, and the interest must be paid regardless of the bank’s profitability.

In addition, anyone can have a CD at a bank as long as they meet the requirements, but to open a share certificate, you must be a member of that credit union.

How They Work

CDs and Share Certificates are designed for the long term. You put money in, and the longer your term, the more dividends/interest you earn when you withdraw. Consumers like them because the rates tend to be higher than typical savings accounts.

However, the dividend/interest earned is fixed when you open the account. This is nice if interest rates go down, but if interest rates rise, you won’t be able to capitalize on that increased earning potential.

Long-Term Security

Another reason these products are popular as a long-term strategy is security. Share Certificates are guaranteed by the National Credit Union Share Insurance Fund (NCUSIF), while CDs at banks are insured by the FDIC. Your money will stay safe for the life of the account.

Early Withdrawal Penalties

Because the terms typically range from several months to several years, consumers face pretty strong penalties for early withdrawal. In fact, sometimes the fees are so high that they negate your earnings from the account.

If you have a comfortable savings cushion, want an easy way to earn extra money, and don’t think you will need to withdraw from the account in the near future, a CD/Share Certificate is a smart choice.

Summary

Putting savings into a CD or share certificate is a smart way to have your money earn interest without very much effort from the person. Understanding the differences between a share certificate versus a CD can help you decide which option is best for your savings goals.

A+ Can Help You Maximize Your Savings Goal

A+FCU offers share certificates to help you grow your savings. With certificate terms ranging from six to 60-months, users can pick the best decision for their savings. Plus, you can use your PlusPoints to increase the dividend rate by an extra 0.25%.

Membership required. Insured by NCUA. A penalty may be imposed for early withdrawals. Conditions and restrictions may apply. Subject to change without notice.