You’ve heard of share certificates and certificates of deposit (CD). But are there differences between the two, or are they the same product offered by two different types of financial entities? This guide provides an in-depth answer to this question and dives into the specifics of each savings vehicle.
A share certificate is a type of savings product offered by credit unions. It works like a certificate of deposit (CD) but is available only to credit union members.
When you open a share certificate, you agree to deposit your money for a set period. During this period, it earns dividends at a fixed rate. The longer you leave your money, typically, the higher the return.
Unlike some investments that carry risk or fluctuating returns, the returns on share certificates are stable. This makes them attractive for people who prioritize security in managing their savings.
It’s also worth noting that credit unions insure share certificates up to $250,000 through the National Credit Union Administration (NCUA). This means your funds are safe even if the credit union shuts its doors.
Simply, share certificates provide you with a secure way to save and grow your money. And there are no surprises since the annual percentage yield (APY) is fixed, giving you predictable returns.
What is a Certificate of Deposit (CD)?
A certificate of deposit (CD) is a type of savings account you can open at a bank. It requires you to deposit funds and leave them in the account for a set period. In return, the bank pays you a fixed interest rate higher than a regular savings account.
CDs typically have terms ranging from a few months to several years. You can expect to earn a more generous APY than you would with a regular savings account, and it will remain the same over the CD term.
It’s worth noting that CDs lack liquidity, as you generally cannot withdraw your money without a penalty before the CD matures. Still, CDs are considered a low-risk investment since returns are guaranteed. When the term ends, you have the option to withdraw funds and any accrued interest or roll them over into a new CD.
What is the Purpose of a Certificate of Deposit (CD)?
The primary purpose of a CD is to let you earn a fixed return on your money for a specific period. This is beneficial if interest rates are expected to stay the same or drop. You can lock in a good rate and know exactly how much you will earn by the end of the term.
| Institution | Terms and Rates | Earnings | Insurance | Access and Eligibility | |
| Share certificate | Offered by credit unions | Locks in your funds for a set period – longer terms typically equate to better rates | Pays out in dividends | Up to $250,000 through the National Credit Union Administration (NCUA) | Limited to credit union members |
| CD | Offered by banks | Same as above | Pays interest | Up to $250,000 through the Federal Deposit Insurance Corporation (FDIC) | Accessible to anyone who meets the bank’s requirements |
Here’s a closer look at the specifics of share certificates.
Shareholder’s Name
The shareholder’s name is prominently displayed on the share certificate. It identifies the person or entity that owns the shares.
Number of Shares and Date Issued
You’ll also find the number of shares on the certificate, along with the date they were issued. This information impacts when the shareholder is eligible to receive dividends.
Share Class
The specific shares can belong to different classes with unique characteristics related to voting rights and dividend eligibility, to name a few. This information is also listed on the share certificate.
Amount Paid on Shares
The share certificate also notates the amount invested. This figure impacts the shareholder’s potential return on investment through dividends.
Certificate Number
It makes identifying the share certificate easier. The certificate number can also be used for tracking purposes.
Company Seal and Signatures
These elements validate the certificate, signifying that it is an authentic and legally binding document. The seal and signatures also confirm the company’s acknowledgment of the shareholder’s rights and ownership.
You can choose from a physical or digital share certificate.
Physical Share Certificates
Physical share certificates are tangible documents that prove your ownership of shares in a company. As previously stated, these certificates include important details such as your name, the number of shares and the date of issuance.
Advantages and Disadvantages of Physical Share Certificates
Pros:
- Tangible proof of ownership
- Personal satisfaction for shareholders
Cons:
- Risk of loss, theft or damage
- Replacement can be challenging
Digital Share Certificates
Digital share certificates have become the standard in the modern financial world. Offered in electronic form, these certificates make it easy to trade and manage shares without handling paper documents.
Advantages and Disadvantages of Digital Share Certificates
Pros:
- Faster and more cost-effective
- Minimal risk of loss or damage
- Secure online access and storage
Cons:
- Dependent on secure internet and electronic systems
- Potential vulnerability to cybersecurity threats
Process of Issuing Share Certificates
You, the account holder, apply for a share certificate, select the desired term, and if approved, deposit funds to open the account. The credit union verifies your deposit and issues a share certificate in physical or digital form.
A share certificate acts as a deposit account. While your funds are in the certificate, they’re earning a fixed rate. You agree to keep your money in the account for a specific term. When this term ends, that’s known as the maturity date.
Upon maturity, you can cash out your share certificate. You will receive the initial deposit amount plus any earnings from interest. Some credit unions offer plans to reinvest the money into a new share certificate at the current rate.
If you are a member of a credit union, a share certificate might be convenient. It extends the benefits of credit union membership, like personalized service. A CD might be suitable if you’re more familiar with traditional banks or if you are seeking specific features exclusive to certain banks.
If you bank with a credit union and are looking for a safe place to save money with a fixed return, share certificates might be a good option. Consider your financial goals and whether you can commit to keeping your money untouched for the term to determine if this investment vehicle is right for you. But if you need frequent access to your funds, a regular or high-yield savings account at a traditional bank, online bank, or credit union might be a better fit.
