What Is a Share Savings Account & How Does It Work?
Understand share savings accounts: their unique role at credit unions, member benefits, and how they function.
A share savings account is a type of savings account primarily offered by credit unions. It serves as a foundational account for establishing membership. This account allows individuals to save money while earning returns, similar to a traditional bank savings account, but with key distinctions.
Understanding Share Savings Accounts
A share savings account represents an individual’s ownership stake in a credit union. Unlike banks, which are for-profit entities owned by shareholders, credit unions are member-owned, non-profit financial cooperatives. When you open a share savings account, you become a part-owner, or member, of the credit union. This cooperative structure means the credit union exists to serve its members rather than maximize profits for external shareholders. Any earnings generated are reinvested into the institution, often resulting in benefits for members.
This model differs from traditional banks, where customers are account holders but not owners. Banks operate to generate profits for their shareholders, and their relationship with customers is transactional. The “share” in a share savings account reflects this member-ownership structure, emphasizing that your deposits contribute to the cooperative’s overall financial health.
Key Features and Member Benefits
Funds deposited into a share savings account earn “dividends” rather than “interest.” This terminology reflects the credit union’s member-owned, non-profit status, where a portion of the credit union’s earnings is returned to members. These dividends are treated as interest income for tax purposes and are taxable to the member. Many share savings accounts feature low minimum balance requirements, sometimes as little as $5 or $25, to establish and maintain membership.
Share savings accounts at federally insured credit unions are protected by the National Credit Union Administration (NCUA), which insures deposits up to $250,000 per member, per credit union, for each account ownership category. This federal insurance provides comparable safety to accounts at FDIC-insured banks. Members often benefit from more favorable dividend rates and lower fees compared to traditional banks, as profits are returned to members instead of external shareholders. The member-focused model can also lead to a more personalized banking experience and a focus on community support and financial education.
Opening and Managing Your Account
Opening a share savings account requires meeting the eligibility criteria for credit union membership, often referred to as a “common bond.” This common bond might be based on where you live, work, worship, or through affiliation with specific organizations. Once eligibility is confirmed, you need to provide identification documents. This usually includes a valid government-issued photo ID, such as a driver’s license or passport, proof of address like a utility bill, and your Social Security Number or Individual Taxpayer Identification Number (ITIN).
An initial deposit, often ranging from $5 to $25, is required to establish your membership and activate the account. After opening, managing your share savings account involves making subsequent contributions through various methods, including direct deposit or electronic transfers. While these accounts are primarily for saving, you can access funds through in-person withdrawals, ATM access, or online and mobile banking platforms. While Regulation D, which previously limited certain transfers and withdrawals from savings accounts, was suspended, some credit unions may still voluntarily impose similar transaction limits.