Share Certificate Vs. CD: What’s the Difference?

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Share certificates and certificates of deposit are similar, though they’re offered by different financial institutions.

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  • Share certificates are issued by credit unions, while certificates of deposit are issued by banks.
  • Both bank accounts have fixed interest rates for set term lengths.
  • You’ll generally pay an early withdrawal penalty if you take money out before your term is up.

A certificate of deposit or share certificate is a low-risk option to grow your money with a stable interest rate. Here’s what you need to know about these savings tools.

Similarities and differences between share certificates and CDs

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 offerings are one year at a minimum.

Generally, the longer the term of a share certificate or certificate of deposit, the higher the interest rate you’ll receive. Both types of bank accounts usually come with early withdrawal penalties if you take your money out before your term is complete, which can eat into your earnings.

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.

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Who should open a share certificate or CD?

Both CDs and share certificates are generally considered extremely safe, so you should consider them 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 a locked-in CD or share certificate rate.

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

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Which is better, a credit union or a bank? 

It depends on what you’re looking for in a financial institution. Credit unions are non-profit 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 US 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.

What are 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 facing an early withdrawal penalty that will eat into your earnings. If you are interested in another savings accounts, consider these options:

  • High-yield savings account. These accounts generally have comparable interest rates to CDs and share certificates, depending on the term length. 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.
  • Investing in the stock market. This method has the highest potential for returns, but there’s also a significant risk of losing money. Stock market investments aren’t insured by the government. Experts generally do not recommend investing money you’ll need in the next five years because you won’t have time to make up for your losses if there’s a stock market drop.

Share certificates and certificates of deposit really aren’t all that different, so the choice will really come down to if you prefer to do business with a credit union or a bank. 

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