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What Is the Difference Between A Certificate of Deposit (CD) and Share Certificate?

Certificates of Deposit

If you are looking for the best savings account to maximize your returns, chances are you’ve thought about opening a share certificate or certificate of deposit (CD). Wondering what the differences are between these two, and which one makes sense for you? We’re here to help!

What Is a Share Certificate?

A share certificate is a savings product provided by credit unions like Service Credit Union. It functions as a fixed-rate savings account where you deposit a specific sum of money for a predetermined period, typically ranging from a few months to several years.  During the term of a certificate, you cannot touch your money. In the meanwhile, you earn a fixed percentage yield which is given back to you upon the completion of the certificate’s term. The yield, often referred to as an APY, or Annual Percentage Yield, is a normalized compounding of dividends after one year. Term lengths vary and usually start at a minimum of 6 months, but the longer they are, the higher the yield, as you are earning more each time your money grows. 

While you own this certificate, you cannot withdraw money or “break” the certificate without paying a penalty. Because there is a stop-gap to withdrawing funds early, your financial institution can offer you a higher yield than it can with a savings account.

How Does a Certificate of Deposit Work?

Certificates of deposit, commonly known as CDs, operate on a similar principle to share certificates. They both involve depositing funds into an account for a set term, but a CD pays interest, while a share certificate pays dividends. CDs are typically offered by banks, while share certificates are offered by credit unions. As a member-owned financial institution, a credit union can typically offer better rates than banks.

Advantages of Share Certificates:

Competitive Rates: Share certificates frequently offer higher interest rates compared to traditional savings accounts, making them an attractive option for those seeking to maximize returns on their savings. 

Credit Union Savings Options: By opting for a share certificate through a credit union such as Service Credit Union, members can benefit from lower fees, personalized service, and strong community involvement. 

Flexibility: Share certificates provide flexibility in terms of contribution amounts and maturity periods, allowing savers to tailor their investments to suit their specific financial goals and timelines. 

Dividend Earnings: As a member of a credit union, investing in a share certificate means you’re essentially investing in your financial institution. This can lead to better rates and savings for all credit union members.

Are CDs Safer than Share Certificates?

Both share certificates and CDs are considered relatively safe investment options, especially when compared to riskier ventures like stocks or mutual funds. They are typically insured by organizations like the National Credit Union Administration (NCUA) or the Federal Deposit Insurance Corporation (FDIC), providing a level of protection for your deposited funds. However, it’s essential to review the terms and conditions, including any penalties for early withdrawal, to make an informed decision based on your risk tolerance and financial objectives. 

Ready to open a share certificate? Check out today’s rates.