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- Share certificates are issued by credit unions, while certificates of deposit are issued by banks.
- Both types of accounts have fixed interest rates for set terms, but early withdrawal penalties may apply.
- Share certificates may offer higher rates than traditional bank CDs, depending on term length.
A certificate of deposit or share certificate is a low-risk option to grow your money with a fixed interest rate. Here's what you need to know about these savings tools.
Share certificate vs. CD: Key differences
Share certificate vs. CD institution type
The main difference between share certificates and certificates of deposit is that share certificates are issued by credit unions, while certificates of deposit are issued by banks.
Share certificates are federally insured by the NCUA while the FDIC insures CDs at banks. Both federal agencies insure bank accounts for up to $250,000 per depositor, per account type, per institution.
Share certificate vs. CD rates comparison
Share certificates and CDs are bank accounts designed for savings that you do not need immediate access to; while you can get one for as short as three months, many CD terms are one year or more.
Generally, the longer the term of a share certificate or CD, the higher the rate you'll receive. But there will usually be early withdrawal penalties if you take your money out before your term is complete, which can eat into your earnings.
Credit unions commonly offer higher interest rates on savings products than traditional banks, so you may have the opportunity to earn better returns with a share certificate than with a CD.
Share certificate vs. CD terminology
Credit unions and banks have slightly different terminology for these nearly identical products. For example, the rate you earn on your deposit is called the dividend rate in a share certificate and the interest rate in a CD.
When shopping for share certificates or CDs, you can refer to the annual percentage yield, or APY, to compare offerings across banks and credit unions.
Pros and cons of share certificates
Share certificate advantages
You may have higher earning potential with a share certificate, but it depends on the terms of your share certificate compared to a CD.
Additionally, credit unions are member-owned and operated as nonprofits. As such, credit unions tend to have high customer service ratings compared to regular banks. They may also offer low-fee bank accounts and lower-rate loan products.
Share certificate disadvantages
Most credit unions only allow members to open share certificates, so access may be limited. In order to become a member, you will need to meet eligibility requirements, such as living in a specific geographic region or working in a certain industry.
Pros and cons of CDs
CD advantages
CDs are widely available through traditional and online banks, which offer a wide variety of terms and rates to better suit most people's needs. Many also have robust online banking apps and branch locations that allow you to easily access your money and check on your CD earnings.
CD disadvantages
You may find lower CD rates at traditional banks and less flexibility around early withdrawals.
Choosing the right fixed-interest option for you
Both share certificates and CDs are generally considered safe. They're a strong option if you're risk-averse or are nearing retirement and don't want to gamble on your money losing value.
High-yield savings accounts and money market accounts have variable rates, so your money could potentially earn a lower rate of return in the long run than with a locked-in CD or share certificate.
However, if you're younger and want the possibility of higher returns, you might consider investing in stocks, an exchange-traded fund, or an index fund.
Which is better, a credit union or a bank?
It depends on what you're looking for in a financial institution. Credit unions are nonprofit institutions controlled by members. As a result, credit unions may offer more personalized customer service or competitive interest rates on savings accounts. Meanwhile, banks are for-profit institutions, so they may have a more robust branch network or a greater variety of products and services.
To open a bank account at a credit union, you must qualify for membership first. Some credit unions will limit eligibility to certain states or jobs, while other credit unions allow anyone in the U.S. to join. Another thing to keep in mind is that credit unions usually require all members to open a membership share account, which is a type of basic savings account.
Alternatives to share certificates and CDs
While CDs are solid investing tools, they do come with their drawbacks. For instance, you likely won't be able to withdraw your money before your term expires without forfeiting some of your earnings.
If you are interested in other ways to keep your money safe, consider these options:
- High-yield savings account. These accounts generally have comparable interest rates to CDs and share certificates. However, the interest rates can rise and fall with a high-yield savings account, as opposed to the fixed rate you receive with a share certificate or CD. If you're trying to decide whether to save money in a CD versus a high-yield savings account, consider how soon you'll need access to your savings. Generally, if you need to use your savings soon, a high-yield savings account will likely be a better option. However, if you don't need immediate access to your savings and CD rates are competitive, CDs are a good choice.
- Money market account. These are interest-bearing accounts that are offered by banks and credit unions. Unlike savings accounts, CDs, and share certificates, you can often get checks and a debit card with a money market account, similar to a regular checking account. If you like having multiple ways to easily access your money, you might prefer a money market account over a CD.
Share certificates and certificates of deposit really aren't all that different, so the choice will come down to if you prefer to do business with a credit union or a bank.
Share certificate vs. CDs FAQs
They are equally safe thanks to insurance provided by the NCUA for credit unions and FDIC for banks. Up to $250,000 per depositor, per account type, per institution is protected in the event of a bank failure.
Credit unions may offer slightly higher rates on savings products, but your earning potential ultimately depends on the amount you're depositing and the term length you choose. Look at APY when comparing rates between share certificates and CDs.
Many credit unions only give members access to their products, like share certificates. However, you may be able to find a credit union with open membership.
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