What Is a Share Certificate and How Can It Help You Save?

If you have set aside some money in savings, but don't need to spend it immediately, a share certificate could put it to work more effectively. Here's how they work and why they're worth knowing about. 

Share Certificates vs. CDs: The Same Idea, Different Name 

You may have heard of a certificate of deposit, or CD. A share certificate is the credit union equivalent, and it works in largely the same way. The difference is where it lives: at a credit union, your deposit is called a "share" because you're a member-owner of the institution, not just a depositor at a traditional bank. Share certificates pay dividends, while CDs pay interest. 

With share certificates, you deposit a set amount of money for a fixed period of time, known as the term. In return, you earn a guaranteed dividend rate for the length of that term. When the term ends, you get your original deposit back along with the dividends earned. 

How Do Share Certificates Work? 

1. Become a member 

To open a share certificate at a credit union, you first need to be a member. Membership makes you an owner of the credit union, not just a depositor, and share certificates are one of the ways you see that ownership come back to you. 

2. Make your deposit 

Choose your term, ranging from short-term options to longer commitments, depending on your savings goals. Each term may come with a different Annual Percentage Yield (APY), which is how you will earn money on your share certificate. 

3. Earn dividends

Once your certificate is open, your money earns dividends at a fixed rate for the duration of the term. Those dividends can be credited to your account monthly, so you can watch your savings grow in real time. 

4. Withdraw or roll over at maturity  

When your term ends, you can withdraw your funds or roll them into a new share certificate. If APY rates have gone up since you deposited your certificate, this could be a great idea to earn more.  

Why Choose a Share Certificate Over a Regular Savings Account? 

A standard savings account is a great place to keep money you might need at short notice. But if you have funds you know you won't need for a while, a share certificate typically offers a higher dividend rate in exchange for leaving the money in place for the agreed term. 

That trade-off works in your favor when: 

• You have a defined savings goal with a clear timeline, such as a vacation, a home down payment or a college fund 
• You want to know exactly what your money will earn, with no guesswork 
• You'd like to separate a portion of your savings from funds you might be tempted to spend 

Because the rate is locked in at the start, a share certificate isn't affected by rate fluctuations during the term. What you're promised is what you get. 

What About Early Withdrawal? 

One thing to know before opening a share certificate: withdrawing your funds before the term ends will typically result in an early withdrawal penalty. This is why share certificates work best for money you genuinely don't need to access right away. If flexibility is a priority, a money market account or primary savings account may be a better fit. 

Are Share Certificates Safe? 

Yes. Share certificates at Service Credit Union are federally insured by the NCUA up to $250,000, just like other deposit accounts.  

Whether you're building toward something specific or just want a portion of your savings earning more than it would in a standard account, a share certificate is a straightforward, reliable option. 

Ready to see what a share certificate could earn for you? View current share certificate rates at Service Credit Union.