What Is a Share Certificate at a Credit Union?
Learn about the credit union share certificate, a key savings product that helps members grow their money and participate in ownership.
A share certificate is a specialized savings product offered by credit unions. It allows individuals to grow their funds over a set period, providing a structured approach to saving with a fixed return on their deposited principal.
The Nature of a Share Certificate
A share certificate functions as a time deposit account, requiring funds to be committed for a predetermined duration. Unlike a traditional savings account, a share certificate involves an agreement to keep the money deposited for its full term. The term “share” is used because credit unions are member-owned financial cooperatives. Investing in a share certificate signifies a member’s ownership stake in the credit union.
Earnings on share certificates are referred to as “dividends” rather than “interest,” though they function similarly as a return on investment. The credit union uses these deposited funds for operations like lending to other members, and in return, the share certificate holder receives a fixed rate of return.
Understanding Key Terms and Features
Share certificates are characterized by several key features. A “fixed term” dictates the length of time the funds must remain in the account, commonly ranging from a few months to several years. Longer terms generally offer higher dividend rates.
The “fixed interest rate,” or dividend rate, is established at the time the certificate is opened and remains constant for the entire term. This predictability ensures that the rate of return will not fluctuate, regardless of market changes. Should funds be accessed before the maturity date, “early withdrawal penalties” are typically applied. These penalties often involve the forfeiture of a portion of the earned dividends and can sometimes reduce the principal if earned dividends are insufficient to cover the penalty.
Share certificates are protected by “NCUA insurance,” provided by the National Credit Union Administration. This federal insurance safeguards the principal amount up to $250,000 per member, per credit union, for each ownership category. At the end of the fixed term, members have “renewal options,” which typically include withdrawing the funds, reinvesting the principal and dividends into a new share certificate, or transferring the money to another account.
Opening and Managing Your Share Certificate
Opening a share certificate at a credit union requires establishing “credit union membership.” Eligibility often depends on a “common bond” such as living, working, or worshipping in a specific geographic area, being employed by a particular company, or belonging to an association. Some credit unions also offer open membership, requiring only a small deposit or donation to an affiliated cause. Once eligibility is confirmed, membership typically begins with a small initial deposit into a basic savings account, often ranging from $5 to $25.
To open the share certificate, individuals will need to provide “information needed to open” the account, which includes a government-issued photo identification, Social Security number or Individual Taxpayer Identification Number, and proof of address. The “process of opening” a share certificate can be completed in person at a branch, online through the credit union’s website, or over the phone. Initial funding can be done via transfer from an existing account, direct deposit, or check.
After opening, members receive periodic statements detailing their earnings and notices as the maturity date approaches. Upon reaching “actions at maturity,” members have several choices. They can choose to withdraw the entire sum, including the accumulated dividends, without penalty. Alternatively, they can opt to renew the certificate for another term, often at the prevailing rates, or transfer the funds to another account within the credit union.