CDs Vs. Share Certificates: What’s The Difference?

Both certificates of deposit (CDs) and share certificates are low-risk deposit accounts where your money can grow at a fixed rate. The main distinction between them is that CDs are products offered by for-profit banks, while share certificates are offered by member-owned, not-for-profit credit unions.

Understanding the differences can help you choose the right option for your savings goals and decide whether joining a credit union might benefit your overall financial strategy.

Differences between CDs and share certificates

What is a certificate of deposit?

A CD is a type of bank account that’s opened for a predetermined amount of time and earns interest at a guaranteed rate. Generally, the account holder cannot withdraw the principal from the account until the CD’s term ends, or else they’ll incur an early withdrawal penalty. Some types of CDs allow more flexibility, such as no-penalty CDs.

What is a share certificate?

Share certificates, sometimes referred to as credit union CDs, are largely the same as CDs, except they’re offered by credit unions. The earnings on share certificates are called dividends, which are shares of the credit union’s profits. Dividends function the same as yields on CDs, although some credit unions may offer higher rates or lower fees as a result of sharing profits.

You must be a credit union member to open a share certificate. Credit unions often serve a specific community, geographic area, type of employee or association, but some open membership to all. Alliant Credit Union, for example, offers one option that lets anyone join after making a $5 donation to its foundation.

Like CDs, share certificates come in a variety of term lengths, and you typically pay a penalty if you withdraw early. Federally- insured credit unions are backed by the NCUA rather than the FDIC, but NCUA insurance still guarantees that up to $250,000 per depositor, per ownership category, per institution, are covered.

Who should get a share certificate vs. CD?

Because the biggest difference between share certificates and CDs is the institutions at which they’re offered, the decision to open one or the other largely depends on whether you prefer to manage your money at a credit union or traditional bank.

Data from the National Credit Union Administration shows that rates at credit unions are higher than banks: The most recent report shows that a 1-year certificate earned an average yield of 3.03 percent, while banks paid an average of 2.35 percent. That doesn’t make credit unions the automatic winner, though. Online-only banks have emerged as formidable competitors in the realm of high-yield CDs, offering some of the most competitive yields on the market.

Alternatives to share certificates and CDs

Standard CDs and share certificates come with an important drawback: You don’t have free access to the money in the account until the term is up. If you need more liquidity or you’re willing to accept more uncertainty than a CD or share certificate, consider these options for your money instead:

• High-yield savings accounts: The best high-yield savings accounts are currently paying rates that are nearly in line with some of the best 1-year CDs and share certificate. However, you won’t pay a penalty for withdrawing the funds and can add money whenever you want. Keep in mind, however, that rates on high-yield savings accounts are variable and may change at any time.
• Money market accounts: Money market accounts are a cross between a savings account and a checking account. They have rates similar to an HYSA but often come with a debit card or check-writing privileges. That’s good for earning a higher rate on your everyday money, but it can also create temptations to spend more of the money rather than leaving it alone to rack up interest.
• Bonds: Bonds let you invest in governments and corporations. While there are additional layers of complexities and risks compared with the fixed-rate return of a CD or share certificate, short-term bond funds may help you earn a decent return in of five years or less. Governments and corporations can run into all kinds of trouble, which means you’ll need a higher risk tolerance.

Compare high-yield savings accounts →

Bottom line

CDs and share certificates are nearly identical products. Both offer guaranteed returns in exchange for locking up your money for a set period of time. However, where you’ll open one can feel very different. While some people love the experience of a big bank with a nationwide network of branches, others love the feeling of belonging to a credit union. Think about what you’re looking for in a financial institution, and cast a wide net in your search to make sure you can earn the best return on your savings. 

FAQs

• Are CDs safer than share certificates?
  

  Caret Down Icon
  

  Both CDs and share certificates are equally safe, as they’re both federally insured up to $250,000 per depositor, per ownership category, per institution. CDs are protected by FDIC insurance, while share certificates are protected by NCUA insurance. Both provide the same level of security and government backing.

• Is a share certificate the same as a CD?
  

  Caret Down Icon
  

  A share certificate is essentially the credit union equivalent of a bank CD. Both are fixed-term deposit accounts that earn guaranteed returns, require you to lock up your money for a specific period, and carry early withdrawal penalties. The main differences are the institution type (credit union vs. bank) and terminology (dividends vs. interest).

• Can I add money to a share certificate or CD?
  

  Caret Down Icon
  

  Generally, you cannot add money to a standard CD or share certificate after opening. These are designed as fixed-deposit accounts where you deposit a lump sum and leave it untouched until maturity. However, some institutions offer add-on CDs or share certificates that allow additional deposits during the term, though these typically come with lower interest rates than standard products.