What Is a Share Savings Account & How Does It Work?

A share savings account is a savings vehicle primarily offered by credit unions. It allows individuals to deposit funds and represents a unique form of ownership within the financial institution. This account serves as an entry point for becoming a member and participating in the cooperative structure of a credit union.

Core Characteristics of Share Savings Accounts

Share savings accounts are distinct from traditional bank savings accounts because they are offered by credit unions, which are not-for-profit financial cooperatives owned by their members. The term “share” signifies this ownership stake, typically requiring a small initial deposit, often as low as $5 or $25, to establish membership.

This cooperative structure means that credit unions return earnings to their members in the form of “dividends” rather than “interest.” Dividends represent a share of the credit union’s profits, distributed among members. Unlike banks, which aim to generate profits for external shareholders, credit unions prioritize sharing their financial success with those who use their services.

The distinction between dividends and interest is rooted in the legal and operational nature of these institutions. Dividends are considered a return on an equity investment, reflecting the member’s ownership. Interest, conversely, is a return on a debt investment and is typically earned daily according to a deposit contract. While both allow account holders to earn a return on savings, federal credit unions can only offer dividend-bearing accounts, whereas state-chartered credit unions may offer both, depending on state law.

Steps to Open a Share Savings Account

Opening a share savings account typically begins with establishing eligibility for credit union membership. Eligibility requirements vary but commonly include factors like living, working, or worshipping in a specific geographic area, being employed by a particular company, or affiliation with certain organizations. Many credit unions also extend membership to family members of existing members.

Once eligibility is determined, the process requires providing specific personal documentation. Applicants generally need a valid government-issued photo identification, such as a driver’s license, passport, or state ID, to verify their identity. Proof of address, like a utility bill or bank statement, is also commonly required.

A Social Security number or Taxpayer Identification Number (TIN) is necessary for tax reporting purposes, as earnings from these accounts are subject to taxation. An initial deposit is usually required to activate the account and solidify membership, with amounts often ranging from $1 to $25.

Accessing and Managing Your Account

Once a share savings account is established, members can manage their funds through various methods. Deposits can be made in several ways:

• Direct deposit of paychecks
• Electronic transfers from other financial institutions via Automated Clearing House (ACH)
• Mobile check deposit through the credit union’s app
• In-person deposits at a branch or ATM

Some credit unions also participate in shared branching networks, allowing members to conduct transactions at other credit union locations.

Withdrawing funds is equally flexible, with options typically including ATM withdrawals, online transfers to linked accounts, or in-person transactions at a credit union branch. While federal rules regarding monthly withdrawal limits from savings accounts have been suspended, individual credit unions may still impose their own limits and associated fees for excessive transactions. Members can monitor their account activity and balances through online banking portals, mobile applications, and periodic account statements.

Dividends on share savings accounts are typically calculated using either the daily balance or average daily balance method. These earnings are commonly compounded daily and credited to the account on a monthly or quarterly basis. While dividend rates can fluctuate based on market trends and the credit union’s financial performance, they are designed to return a portion of the institution’s profits directly to its members.