- Higher interest rates: Share certificates offer higher interest rates than traditional savings accounts, so investors can earn more on their savings.
- Eliminates the guessing game: Some investors like to know how much of a return they’ll receive on their investment. With a share certificate, they’ll know exactly how much money they’ve earned after the term ends.
- It’s a safe bet: Unlike the fluctuation in the stock market, where thousands or millions of dollars can be lost in a single day, a share certificate holds its worth. Whether compounded daily or monthly, a fixed rate means money is earned, and as long as the account holder doesn’t withdraw the money early, the gain will always be positive.
AP Buyline’s content is created independently of The Associated Press newsroom. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about our policies and terms here.
Updated March 7, 2024
In a nutshell
Credit unions offer share certificates, and account holders can secure a fixed interest rate for a specific term on funds deposited into the account.
- Similar to certificates of deposit (CDs) at banks, share certificates are issued by credit unions.
- As with any investment, there could be penalties and fees if you withdraw the money early.
How does a share certificate work?
A share certificate usually offers higher interest rates than traditional savings accounts offered by banks. The fixed term and fixed rate offer predictability for credit union members, making it a safer investment choice for those seeking to minimize risks.
The fixed rate and fixed term of the share certificate can vary by credit union, but members can often select the term length most conducive to their needs. Common share certificate terms are six months, one year, or even longer. One common rule among most credit unions is that a minimum opening requirement is mandatory before opening an account. Potential investors should have plans in place to keep the money in the account to avoid penalties for early withdrawal.
During the term outlined in your share certificate agreement, the credit union will pay you daily or monthly dividends. After the period expires, you can elect to roll the money over into another share certificate, into a checking account, or withdraw the money altogether.
Share certificate pros and cons
Let’s look further into share certificates so you can decide if it’s the right choice for you and your financial situation.
Pros:
Cons:
- Penalties for early withdrawal: Share certificates generally impose financial penalties for early withdrawal.
- Funds not accessible: If you need to access the cash in a share certificate before the maturity date of the term, it may be challenging to do so without significant financial penalties. If you think you may need to access your cash in the short term, a share certificate may not be the choice for your financial needs.
- Low returns: A share certificate typically offers higher interest rates than a traditional savings account but limits the gains realized in riskier investments, like bonds and the stock market.
How to open a share certificate
Follow these steps to open a share certificate at a credit union:
- Membership requirements: If you don’t already belong to a credit union, you’ll need to research and find one that fits your financial needs. Credit unions are found locally, through your job, and online.
- Investigate your options: Research your credit union’s share certificate offerings. Look at the interest rate, term length, early withdrawal penalties, and any other special considerations.
- Gather the necessary documents and complete the application: As with most financial products, you’ll need to provide forms of identification, such as a legal ID, proof of address, and your Social Security card to verify your identity. Once you’ve provided these documents, fill out the application in person or over the phone.
- Make the deposit: The last step in opening a share certificate is depositing the initial investment. The minimum deposit amount will vary depending on the credit union and specific terms of the certificate.
If you’re new to investing and have never opened a share certificate or other investment account, it’s always a good idea to come prepared with any questions you have.
Share certificate vs. certificate of deposit (CD)
A share certificate is very similar to the certificate of deposits (CD) traditional banking institutions offer. What differentiates a share certificate from a CD is that share certificates provided by credit unions pay dividends rather than the return from established interest rates. Credit unions are owned by their members and are not considered for-profit businesses like traditional banks.
One similarity between these two financial products is that they offer fixed rates for a fixed term, so investors know exactly how much money they’ll make and how long their money will be tied up. Another attractive feature of CDs and share certificates is their relative safety, especially when issued by reputable financial institutions because they are often backed by government agencies against default and insolvency.
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If you think a share certificate is right for your financial situation, make sure you do your research; explore all avenues before making a commitment. If you think you’ll need the cash used to open a share certificate before the term ends, you’ll pay significant penalties for early withdrawal. In that case, finding another way to grow your money may be a better option.
AP Buyline’s content is created independently of The Associated Press newsroom. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about our policies and terms here.