What is a share certificate?

If you're saving for a major goal, like buying a home or taking a dream vacation, it’s important to make sure your money is protected and earns a competitive interest rate. One option is to put your money in a certificate of deposit (CD). But if you’ve researched CDs at credit unions, you may have come across something else called a share certificate.

These accounts are similar to CDs — they require you to keep your money on deposit for a certain amount of time, during which you earn a fixed interest rate. And like CDs, share certificate interest rates tend to be much higher than the rates offered by traditional savings accounts.

Still, there are some important differences between CDs and share certificates. Here’s what you need to know.

Share certificates function similarly to certificates of deposit; the key difference is that they're offered by credit unions rather than banks

Like a CD, a share certificate is a deposit account that requires you to make a deposit and leave it untouched for a specific period, known as the term. In exchange for leaving your money in the share certificate, the credit union pays you a higher APY.

To avoid confusing customers, some credit unions list their share certificates as “CDs” on their websites and other marketing materials.

How share certificates work

With a share certificate, you select a term; depending on the credit union, terms can range anywhere from a few months to several years. Once you've chosen a term, you can deposit money into the account. Credit unions usually have minimum deposit requirements, so you'll typically need between $250 and $1,000 to open a share certificate account.

Once your account is opened and funded, you must leave the money in the account until the share certificate term expires. If you withdraw money before the share certificate maturity date, you'll have to pay early withdrawal penalties. The penalty varies by credit union, but you usually will lose days or months of dividend payments.

How do share certificates differ from CDs?

Although share certificates and CDs are very similar — so much so that some credit unions use the terms interchangeably — there are five major differences to keep in mind:

Issuer: CDs are available through banks, while share certificates are available through credit unions. As nonprofit organizations, credit unions often have higher APYs and lower deposit requirements and fees than for-profit financial institutions.
Coverage: As a type of deposit account, share certificates opened through a federally insured credit union are protected. However, while CDs are backed by the Federal Deposit Insurance Corporation (FDIC), share certificates are insured through the National Credit Union Share Insurance Fund (NCUSIF). Thanks to the NCUSIF, your share certificate deposits are protected up to a maximum of $250,000. Notably, no credit union member has ever lost money from an account insured by the NCUSIF.
Interest vs. dividends: Rather than paying interest, share certificates pay customers dividends. How dividends are handled varies by credit union, but dividends may be compounded daily or monthly.
Deposit requirements: In general, share certificates tend to have lower minimum deposit requirements than CDs. We looked at 30 CDs and share certificates; on average, we found that CDs required approximately $1,000 to open an account. By contrast, the average minimum deposit requirement for share certificates was just $600, making them a good option if you have a smaller amount of cash available.
Term options: Share certificates tend to have shorter-term options than CDs. With banks, you can choose CD terms as long as 120 months. With share certificates, the maximum term length tends to be 60 to 84 months.

How to open a share certificate account

You can open a share certificate in five easy steps:

1. Review credit union requirements

To open a share certificate account, you have to meet the credit union's membership requirements and join. Some credit union memberships are available to the general public by making a donation to a charitable organization, but others are more limited. For example, some credit unions limit their memberships to residents of certain counties or employees of specific companies.

2. Gather documentation

You'll need to provide the credit union with some identification, such as a driver's license or other form of government ID. You may also have to provide your mailing address, phone number, and email address.

3. Fill out the online application

You can usually open a share certificate online through the credit union's website. The application will ask for your personal information, including your name, contact information, and Social Security number. The site will prompt you to select a share certificate term and deposit amount. It will also ask you to consent to the account terms, including the terms and conditions regarding early withdrawals and penalties.

4. Fund your share certificate

Once you've filled out the application and selected a term, you can fund the share certificate. To fund the account, you'll need the bank account and routing numbers to an existing checking or savings account.

5. Make a note of the share certificate end date

Set a calendar reminder for the share certificate's term expiration. Once the share certificate matures, you can withdraw the money and transfer it to savings, or you can roll it into another share certificate. If you don't take any action, the credit union will automatically roll it into another share certificate, and you won't be able to withdraw money before the new term ends without incurring penalties.

Frequently asked questions

Is a share certificate the same as a CD?

Share certificates are very similar to CDs, but they're not exactly the same. Unlike CDs, share certificates are offered by credit unions, and they pay dividends rather than interest.

Are share certificates worth it?

For money you don't need to access in the next few months or years, a share certificate can be a smart idea. Your money can earn a much higher APY than you'd get with a savings account, without the risks of investing in the stock market.

Do share certificates get taxed?

The dividends you earn through a share certificate are taxable as income. If you earned dividends, the credit union will send you Form 1098-INT, Interest Income, showing how much you earned throughout the tax year. You use the form to report your earnings on your taxes.***