What Is a Term Share Certificate & How Does It Work?
Understand Term Share Certificates: a secure credit union savings option offering fixed returns for your financial goals.
A Term Share Certificate (TSC) is a savings product offered by credit unions. It functions as a time deposit, allowing individuals to save money for a fixed term while earning a fixed rate of return.
Understanding Term Share Certificates
A Term Share Certificate represents a savings account offered exclusively by credit unions, where a member deposits a sum of money for a set period, known as the term. In exchange for committing funds for this duration, the credit union provides a fixed interest rate on the deposit. The core concept involves the member agreeing not to withdraw the deposited funds until the specified term concludes, typically without incurring penalties. In return, the depositor receives a fixed rate of return on their money.
Key Characteristics of Term Share Certificates
These certificates come with predetermined terms, which can range from a few months, such as three or six months, to several years, commonly including one, two, or five-year options. The interest rate for a Term Share Certificate is set at the time of deposit and remains constant for the entire term. Credit unions typically require a minimum initial deposit to open a TSC, with common minimums often ranging from $500 to $1,000, though some may offer lower requirements. An early withdrawal penalty is incurred if funds are withdrawn before the maturity date, usually involving the forfeiture of a portion of the interest earned, such as 90 or 180 days’ worth of interest.
Term Share Certificates vs. Certificates of Deposit
Term Share Certificates and Certificates of Deposit (CDs) are both time deposits with fixed interest rates and early withdrawal penalties. The primary distinction lies in the financial institutions that offer them: Term Share Certificates are exclusively available through credit unions, while Certificates of Deposit are offered by banks. Credit unions operate as member-owned, not-for-profit organizations, whereas banks are typically for-profit institutions. Deposits in credit unions are federally insured by the National Credit Union Administration (NCUA) up to $250,000 per depositor, similar to FDIC insurance for bank deposits.
Opening and Managing a Term Share Certificate
Before opening a Term Share Certificate, consider aligning the term length with personal financial goals to ensure funds will not be needed prematurely. Research interest rates and early withdrawal penalty structures offered by various credit unions, as these can vary. Note that once opened, additional deposits cannot be made until maturity.
Upon maturity, the credit union will typically notify the member. At this point, several options become available: the funds can be reinvested into a new Term Share Certificate, withdrawn entirely, or transferred to another account. Many credit unions offer a “grace period,” often lasting around seven to fourteen calendar days after maturity, during which the member can make decisions about the funds without incurring early withdrawal penalties. If no action is taken during this grace period, the certificate may automatically renew for a similar term at the current interest rate.