Takeaways
- Share certificates are "CD-like" investments issued by credit unions.
- Share certificates earn a fixed interest rate over a set term (investment period).
- Terms for share certificates range from 3 to 9 months and even multiple years.
- Investors like share certificates to diversify portfolios and earn passive income.
- Share certificates often earn higher interest rates than share accounts, the equivalent of a bank's savings account.
Many people are familiar with bank certificates of deposit (CDs) when it comes to saving money securely while earning interest. However, if you are a credit union member, you might come across a similar but differently named product called a share certificate. While the concept is very much the same as a CD, share certificates are unique to credit unions. They are a popular investment vehicle for members looking to grow their savings at a predictable, fixed interest rate.
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A share certificate is a savings product that credit unions offer that allows members to deposit money for a fixed period at a fixed interest rate. In exchange for agreeing to leave your money untouched during the term, the credit union pays interest, often at a higher rate than traditional share accounts. Share certificates are considered a safe and low-risk investment, making them a super attractive option for conservative savers.
Share certificates typically require a minimum deposit, often as low as $500, and terms can vary from a few months to several years. At the end of the term or maturity date, you can withdraw your original Deposit along with the interest earned or reinvest it into a new share certificate.
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Share certificates operate much like bank CDs. When you open a share certificate, you agree to deposit a specific amount of money for a predetermined length of time. In return, the credit union pays you a fixed interest rate during the agreed-upon term.
Here is how the process works:
1. Choose a Term—Popular term options include 3, 6, and 9 months, 1 year, 3 years, or 5 years. Longer terms typically offer higher interest rates.
2. Make a Deposit—You must meet the credit union’s minimum deposit requirement.
3. Earn Interest—Your money earns interest at the agreed rate, compounding over time. This means that not only does your initial deposit earn interest, but the interest also earns interest, leading to a snowball effect on your savings.
4. Wait Until Maturity—When the term ends, you can withdraw your funds or roll them into a new share certificate.
Because share certificates offer fixed rates and terms, they provide stability. Your funds are typically insured up to $250,000 by the National Credit Union Administration (NCUA), the credit union equivalent of the Federal Deposit Insurance Corporation (FDIC) for banks.[1]
One important thing to note is that withdrawing money from a share certificate before maturity can result in an early withdrawal penalty. Read your investment to see if any fees will apply.
For instance, if you invest in a six-month share certificate and withdraw money within the first six months, you might lose all your accrued interest to penalties. With share certificates, it is best only to invest funds you can afford to lock away for the duration of the certificate. You can reinvest your earnings to earn compound interest and grow your savings even faster.
Share accounts can be excellent ways to save money and meet your short-term and long-term financial goals. Retail and institutional investors use them to stash their cash and preserve capital. Here are some reasons you might want to invest in CDs.
- Stashing your slush fund
- Saving your wedding fund
- Savings for a down payment
- Diversifying your investment portfolio
Many credit union members also hold share accounts, which are the credit union equivalent of savings accounts. While both share certificates and share accounts help you save money and earn interest, share accounts offer you more flexibility. Here is how they compare:
| Feature | Share Certificate | Share Account |
|---|---|---|
| Access to Funds | Locked in for a set term | Flexible, can deposit or withdraw anytime |
| Interest Rate | Fixed, usually higher | Variable, usually lower |
| Minimum Deposit | Often $500 or more | Often lower, around $5 to $25 |
| Penalty for Early Access | Yes, early withdrawal penalties apply | No penalties for withdrawals |
| Term Length | Fixed term (e.g., 6 months, 1 year) | No set term |
Credit unions are member-owned financial cooperatives, meaning every member owns a share in the institution. When you open an account at a credit union, you are not just an account holder but a part-owner.
- 142.3 million credit union members were reported at the end of 2024, with credit union membership increasing over the past decade.[2]
This distinction often comes with benefits such as lower fees, better interest rates, and a focus on serving the members' financial health. Credit unions exist to serve their members, and their earnings are returned to members in the form of better rates and services rather than profits for shareholders.
Smart Summary
A share certificate is a fixed-rate savings product offered by credit unions, similar to a certificate of deposit at a bank. It allows you to earn guaranteed interest over a set period, making it a secure and predictable way to grow your savings. Share certificates require you to commit your funds for a specific term, and early withdrawals usually incur penalties. Share certificates can be a great investment product to help you achieve your financial goals.
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Frequently Asked Questions
You can be a credit union member and a bank account holder. You should explore using both institutions to optimize your financial product use, like finding the best credit cards.
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(1) National Credit Union. Share Insurance Coverage. Last Accessed April 27, 2025.
(2) Statistical. Number of members of credit unions in the United States from 2013 to 2024. Last Accessed April 27, 2025.
