Is a Share Account Checking or Savings?
Unsure if a credit union share account is checking or savings? This guide clarifies their distinct functions and roles.
A common point of confusion arises with “share accounts,” particularly whether they function as checking or savings accounts. This article clarifies the nature and purpose of share accounts.
What is a Share Account
A share account serves as the foundational account for membership within a credit union. Unlike traditional banks that are typically for-profit entities, credit unions are member-owned financial cooperatives. When an individual opens a share account, they are not merely a customer but become a part-owner of the credit union itself. This ownership stake is represented by the “shares” held in the account.
This structure means that the funds in a share account differ from typical deposits in a bank. Instead of a creditor-debtor relationship, a share account establishes a member-cooperative relationship. This initial account is usually required to gain access to other financial products and services offered by the credit union.
Share Accounts as Savings
The primary share account at a credit union functions similarly to a traditional savings account. It is designed as a place for members to accumulate funds and earn returns on their money. These returns are typically referred to as “dividends,” which represent a share of the credit union’s profits distributed among its members, rather than interest paid by a bank.
While dividends are akin to interest, their declaration is based on the credit union’s financial performance and is often paid monthly. Share accounts generally have limited transaction capabilities, similar to savings accounts. Some credit unions, however, may still impose their own transaction limits or fees for excessive withdrawals. Most share accounts require a modest minimum deposit to open and may have a minimum balance requirement to earn dividends or avoid fees.
Share Draft Accounts as Checking
For everyday transactional needs, credit unions offer a “share draft account,” which is their equivalent of a checking account. This account is specifically designed for frequent access to funds and managing daily expenses. The term “draft” refers to checks, emphasizing its function as a check-writing account.
Share draft accounts provide features similar to those of traditional checking accounts, including the ability to write checks, use a debit card for purchases, set up direct deposits, and pay bills electronically. Unlike the primary share account, share draft accounts typically allow for unlimited transactions, making them suitable for active money management. While some share draft accounts may earn dividends, their primary purpose is transactional liquidity rather than long-term savings growth.
Distinguishing Features
The fundamental distinction between a share account and a share draft account lies in their primary function: one is for savings and membership, and the other is for daily transactions. The basic share account establishes a member’s ownership and serves as a savings vehicle, earning dividends. In contrast, the share draft account provides the transactional convenience of a checking account, enabling frequent access to funds via checks or debit cards.
Credit unions, being not-for-profit organizations, often return earnings to members through competitive dividend rates and lower fees compared to for-profit banks. All funds held in federally insured credit unions, including both share and share draft accounts, are protected by the National Credit Union Administration (NCUA) up to $250,000 per member, similar to FDIC insurance for banks.