What Is a Share Certificate? How They Work and Alternatives to Help Grow Your Savings (2024)

• Share certificates are the credit union equivalent of a bank certificate of deposit (CD).
• A share certificate can be a secure way to set aside your savings and earn dividends.
• Share certificates have a fixed annual percentage yield for a fixed period.

A share certificate is essentially the credit union version of a certificate of deposit (CD). It’s a type of savings account offered by credit unions that comes with a fixed annual percentage yield (APY) for a fixed period. Though these savings accounts offer a high dividend rate—the credit union version of an interest rate—you can’t withdraw any funds until the term has ended. If you do, you’ll have to pay a penalty.

Share Certificate vs. CD

Share certificates and certificates of deposit (CDs) are basically the same product, except that share certificates are offered by credit unions and CDs are found at banks. They’re both savings accounts that offer a fixed rate of earnings—also known as interest at a bank and dividends at a credit union—for a fixed period.

Both share certificates and CDs are backed by the federal government in case the financial institution fails. Credit union accounts are insured by the National Credit Union Administration (NCUA), and bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC). As long as your bank or credit union is FDIC or NCUA-insured, your deposits are covered up to $250,000 per depositor, per institution, per ownership category.

Another key difference between the two is that opening a share certificate requires a credit union membership, whereas you can open a CD account at a bank as long as you meet their eligibility requirements.

When you deposit funds into a share certificate account at a credit union, you agree to keep your money there untouched for a period of time, known as the term. Like CD terms, share certificate term lengths can be anywhere from three months to 10 years. In exchange for keeping your money with them, the credit union pays you dividends, which may be compounded daily or monthly

Once your share certificate matures, you have a few options. You can leave the money in the account for that time period again, roll your funds into another share certificate, transfer your money into a checking account or withdraw the funds.

Remember, if you withdraw money from the share certificate before its maturity date, you’ll have to pay a fee known as the early withdrawal penalty. The penalty is typically expressed as a certain number of days’ worth of interest and varies depending on the credit union and the share certificate’s term length.

Many credit unions offer impressive share certificate rates right now, which means you can find a place to park your cash and earn valuable returns at the same time.

While share certificates and CDs offer a secure way to store and grow your money, they may not be for everyone. Here are some alternatives to consider if you’re looking for higher potential returns or more flexibility.

High-Yield Savings Account

High-yield savings accounts offer an above-average APY. As of today, some of the best high-yield savings accounts on the market offer APYs as high as 5.55%. For context, the national average savings account interest rate is sitting at only 0.45% APY as of May 2024

High-yield savings accounts are also insured up to $250,000 by the Federal Deposit Insurance Corporation or the National Credit Union Administration. But unlike share certificates, you don’t have to lock your money up for a predetermined period of time to earn impressive returns.

Money Market Account

A money market account is another alternative to consider if you want access to your funds at all times without incurring penalties. You can find these interest-bearing accounts at most banks or credit unions. The best money market accounts offer rates up to 5.25%, much higher than what you could earn with traditional savings accounts.

Money market accounts let you write checks and use a debit card linked directly to the account. These features make it much easier for you to access your cash compared to share certificates. Before opening a money market account, know that you may be expected to meet minimum balance requirements, which can range anywhere from a few hundred dollars to a few thousand dollars.

Bonds

Bonds are debt securities issued by governments and corporations when they want to raise money. Some of the most common types of bonds include corporate bonds, municipal bonds, government bonds and agency bonds.

When you buy a bond, you’re essentially loaning money to the issuer, and in exchange, you receive the face value of the loan plus interest when it matures. Like share certificates, bonds earn high returns and carry little risk, but you’ll face penalties if you withdraw your money early.