The Differences Between Share Certificates and Certificates of Deposit


When it comes to the financial industry, there can be a lot of confusion on products offered by different institutions. And when it comes to investing for your future, it can be intimidating to find where to start. Credit unions offer an array of products and services to get you from point A to point B. A great option to get started are share certificates. They are a secure, low maintenance, flexible option to start a savings journey.

Share certificates may not sound familiar but certificates of deposit might. Staples in the financial industry, these two are commonly mistaken for one another. So what’s the difference between the two? Share certificates are offered by credit unions whereas certificates of deposit, or CD’s, are offered by banks. Foundationally, they are very similar but differ depending on which institution offers them. Often, share certificates earn higher dividends than regular savings account, are unable to be withdrawn from during the term without a penalty, and have a fixed dividend rate throughout the selected term. CD’s also usually offer higher interest rates than savings accounts, are unable to be withdrawn from during the term without a penalty, and have a fixed interest rate throughout the selected term.

Where the differences come in are in the details of each product. Share certificates are federally insured by the National Credit Union Association, whereas CD’s are federally insured by the Federal Deposit Insurance Corporation. Another difference between the two is that share certificates earn dividends rather than interest. Dividends are funds earned that are paid back to the member. Being a member of a credit union means that you are a shareholder in the institution. So any earnings made on your account are dividends that get paid back to you. Interest, however, are funds received for allowing the financial institution to lend it out, or invest. At a bank, the interest you earn back is not because you’re a shareholder in the company.

Not only can it be confusing knowing the difference between products offered by different financial institutions, but it can also be a daunting task when trying to find the best investment option for your needs. When investing in a share certificate at a credit union, you can rest easy knowing that it’s a secure, low maintenance, flexible option. Often, there is no risk associated with share certificates and members are guaranteed a rate of return. Once a share certificate is opened, there is very little that needs to be done to take care of the investment. Some credit unions even offer an automatic renewal after a certain period of time once the share certificate matures, so as to continue earning on your investment if you have no need for the funds elsewhere. Share certificates are also very flexible and are not one size fits all. Depending on the credit union, you can select from a wide variety of terms depending on how long you’d like to invest your funds. Some credit unions even offer the ability to have monthly dividends either reinvested into the share certificate to earn higher dividends each month or deposited into a savings or checking account. Share certificates are a convenient way to set up an investment that works best for you and offer a variety of options to customize how you earn.

When deciding what product to invest in for your future, don’t be afraid to ask your local credit union. Credit unions are designed to be member oriented and often have financial education programs to help guide you in the direction that would best fit your needs. Learn more by contacting WESTconsin today! 

Kasandra Timm, WESTconsin's Member Experience Department Coordinator

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