What Is a Share Certificate?


In the ever-evolving world of personal finance, have you ever stumbled upon the term “share certificates” and wondered what they are? Think of them as a cozy, dependable corner in the bustling marketplace of investment options.

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Much like the reassuring friend that credit unions are to many, share certificates stand as the credit union’s answer to banks’ certificates of deposit (CD). They’re not just a piece of paper or a digital entry; they’re a testament to the smart saving strategies of countless Americans.

Are share certificates the right solution to some of your savings needs? Let’s find out!

What is a share certificate?

A share certificate is a financial product offered by credit unions to their members. This product is quite similar to a certificate of deposit (CD) that banks provide. E

Essentially, when you open a share certificate, you agree to deposit a certain amount of money, known as the initial deposit, with the credit union for a predetermined term length. In return, the credit union offers you a fixed rate of interest on this deposit, which is generally higher than the interest rate offered on savings accounts or checking accounts.

In the United States, share certificates are regulated and protected by the National Credit Union Administration (NCUA), ensuring that they are a secure option for credit union members.

How does a share certificate work?

Before you take the steps to acquire a share certificate, it’s essential to understand the foundational workings of this financial tool. How exactly does a share certificate function in the credit union landscape? Let’s unpack this to give you a clear picture.

Initial Investment

To begin with, a member needs to make an initial deposit, adhering to the minimum balance requirement set by the credit union. This amount is essentially locked in for a predetermined term length, which can span anywhere from a few months to several years.

Fixed Interest Rate

One of the hallmarks of a share certificate is the fixed interest rate it offers. Unlike fluctuating market interest rates impacting savings and checking accounts, the rate remains steady, promising a predetermined yield at the end of the term.

Term Lengths

As a holder of a share certificate, you have the liberty to choose a term length that aligns with your financial goals. Shorter term lengths typically offer lower interest rates, while longer term lengths reward you with higher rates, optimizing your earnings over time.

However, you may find special offers where the credit union will provide a higher interest rate for a 1-year certificate than they would for a five-year term. It pays to research various credit unions and keep an eye on changing interest rates to make the best choice.

Compound Interest

A distinctive feature that works in favor of share certificate holders is the power of compound interest. The interest accrued is reinvested, allowing your money to grow at an exponential rate, a phenomenon often described as “interest on interest.”

Maturity and Renewal

When the term concludes, the share certificate reaches maturity. At this point, there are two main options: you can either withdraw the principal along with the interest earned or reinvest it in a new share certificate. Many credit unions offer an automatic renewal process for this purpose.

Early Withdrawal

While share certificates champion the cause of disciplined saving, they do offer a window for early withdrawal, albeit at a penalty. It implies that in urgent situations, you can access your money early. You will usually pay a penalty fee, which would reduce your accumulated earnings.

How to Acquire a Share Certificate

To get started with a share certificate, one needs to become a member of a federal credit union. These are easy steps that involve meeting the credit union’s membership criteria, which usually includes living in a particular area or working for a certain employer. Some credit unions allow you to join by paying a small, upfront fee.

Once you are a member, you can approach the credit union to open a share certificate. Here’s what you generally need:

  • Initial deposit: A certain amount of money to open the certificate, meeting the minimum balance requirement stipulated by the credit union.
  • Term length: Decide on the term length that suits your financial goals, ranging from a few months to several years.
  • Personal identification: Standard identification documentation to facilitate the setup process.

It’s advisable to explore online banking platforms or even third-party websites for reviews and insights into the best options available in terms of interest rates and customer service.

Pros and Cons of Investing in Share Certificates

Understanding the advantages and pitfalls of your chosen investment tool is essential. Share certificates come with pros and cons, both of which need to be considered carefully.


Fixed Rate

The cornerstone of a share certificate’s appeal lies in its fixed rate of interest, a feature that often sees it outshine savings and money market accounts in the interest rate derby. This fixed rate provides a predictable growth trajectory for your investment, sheltering it from the fluctuating market trends.

Safety Net

Governed by the National Credit Union Administration, certificates guarantee security for your investments up to $250,000, per account holder, per type of account. You know your money will be safe in a certificate.

Higher Annual Percentage Yield (APY)

Step into the higher echelons of earnings with a share certificate’s typically higher APY compared to regular savings accounts. It is an avenue to grow your wealth steadily and surely, albeit with a commitment to a stipulated term.


Early Withdrawal Penalties

While share certificates offer a promising growth trajectory, they demand a firm commitment to the agreed term. Any divergence, characterized by early withdrawal, comes with its set of penalties. These penalties can be substantial, eroding a significant chunk of the accumulated interest, and in some cases, even a part of the principal amount.

Lower Liquidity

A share certificate isn’t your go-to option if easy access to your funds is a priority. The financial instrument operates on the principle of term commitment, and hence offers lower liquidity compared to more flexible options like savings or checking accounts. It implies that your funds remain locked for the agreed term, accessible only at the cost of incurring a penalty fee.

Share Certificates in Your Investment Portfolio

Understanding where share certificates fit in your personal finance roadmap is essential. Given their low-risk profile, they can be a sturdy pillar in a diversified investment portfolio, balancing out more volatile investments like stocks.

Share Certificates Vs. Other Instruments

Comparatively, share certificates stand tall against various other financial instruments:

  • Savings accounts: While savings accounts offer more liquidity, they generally offer lower interest rates compared to share certificates.
  • Money market accounts: Although money market accounts might provide slightly better rates than savings accounts, share certificates usually offer higher interest rates than money market accounts.
  • Stock certificates: Stock certificates represent ownership in a company and come with higher risks compared to share certificates, which are essentially deposit products with a guaranteed return.


Share certificates stand out as a powerful tool in the arsenal of financial products available to American investors today. Whether you are looking for a secure place to park your funds or aiming to achieve a higher annual percentage yield compared to traditional savings and money market accounts, a share certificate could be the right choice.

Remember to align your choice of financial products with your financial goals, taking into consideration factors like term lengths, interest rates, and early withdrawal penalties. Always undertake a thorough research process, perhaps consulting a financial advisor, to ensure that you make the most informed decision.

We encourage potential investors to reach out to their credit unions to explore the myriad of options available, from auto loans to personal loans, and even services such as direct deposit. This venture might open up new avenues in your personal finance journey, facilitating a more enriched and secure financial future.

Frequently Asked Questions

Why do credit unions call it a share certificate?

Credit unions are fundamentally different from banks; they operate as cooperative financial institutions where every member is essentially a shareholder. The terminology “share certificate” emanates from this cooperative spirit, denoting a member’s share in the credit union.

When you invest in a share certificate, you’re not just opening another financial product; you are essentially buying a “share” of the credit union, demonstrating a deeper financial relationship and trust with the institution. This is reflective of the credit union’s policy of working for the benefit of all members, who are also its shareholders, steering towards a path of mutual growth and financial well-being. This is why credit unions prefer to use the term “share certificate” instead of the more commercial term, “certificate of deposit,” which is commonly used by banks.

How does a CD differ from a share certificate?

While a certificate of deposit (CD) is a product offered by banks, a share certificate is essentially the credit union equivalent, offering similar benefits but exclusively to credit union members.

Can you lose money on a share certificate?

It is highly unlikely to lose money on a share certificate as they are backed by federally insured credit unions, ensuring the safety of your certificate funds up to a certain limit.

Can I add funds to my share certificate after the initial deposit?

Typically, share certificates do not allow additional deposits after the initial investment has been made. This is in contrast to other savings instruments like money market accounts or savings accounts, where you can add funds over time.

What is the difference between a share certificate and a stock certificate?

While they might sound similar, a share certificate and a stock certificate represent fundamentally different financial instruments. A share certificate is a fixed deposit with a credit union offering a fixed interest rate over a predetermined term. In contrast, a stock certificate represents ownership or equity in a company, making it a more volatile investment tied to the company’s performance and market fluctuations.

Are the interest rates for share certificates negotiable?

Interest rates for share certificates are generally fixed and are not negotiable. They are determined by the credit union based on various factors including the economic environment, the term length of the certificate, and the amount of the initial deposit.

Do share certificates automatically renew upon reaching maturity?

Many credit unions offer the feature of automatic renewal of the share certificate upon maturity. However, this is not a universal feature and depends on the specific terms and conditions set by the credit union. It is always advisable to check the renewal policy with your credit union as the maturity date approaches.

Can I use my share certificate as collateral for a loan?

Yes, many credit unions allow you to use your share certificate as collateral for loans, including personal loans and auto loans, potentially facilitating a lower interest rate on the borrowed amount.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.