CDs versus Share Certificates, is there a difference?

The main difference between share certificates and certificates of deposit is that share certificates are issued by credit unions, while certificates of deposit are issued by banks. Both Certificates of Deposit (CDs) and share certificates are low-risk deposit accounts where your money can grow at a fixed rate. Unlike the stock market, there is no risk of losing the amount you initially invest in a share certificate.

A share certificate works like a bank CD. You deposit money into the account for a specific amount of time, or term, and earn dividends on your investment, like the interest you'd earn on a CD. The earnings on share certificates are called dividends. Because credit unions are not-for-profit, their profits are distributed among members — who are, by nature, shareholders in the credit union — in the form of dividends. Dividends function the same as yields on CDs.

How does a share certificate work?

Unlike a traditional savings account where you can deposit and withdraw money at any time, share certificates require you to leave your funds in the account for the agreed-upon term, also known as the "maturity date". This commitment is what allows banks and credit unions to offer a higher dividend rate on share certificates than on traditional savings accounts.

Once your share certificate reaches its maturity date, you'll be able to withdraw the money you initially invested, plus the earned dividends. The longer the term of the certificate, the higher the dividend rate typically is, so it's important to carefully consider what term length works best for your financial goals. Generally, the longer the term of a share certificate or certificate of deposit, the higher the interest rate you'll receive. If you wish to take advantage of the higher rates of a five-year certificate but don’t want to lock your money away for that long, you can set up a certificate ladder.

What is a certificate ladder?

A certificate ladder involves opening multiple share certificates with different maturity dates, giving you access to some of your money at different intervals. This can help you avoid paying a penalty for accessing your money early. This is a strategy in which you invest in certificates of different terms and roll the money over into a new certificate or withdraw it after each one matures.

For example, if you invest $20,000, you can do the following: Invest $4,000 each in five different certificates ranging from one- to five-year terms. When the one-year certificate matures, roll that sum into a new five-year certificate. The following year, take the proceeds from the matured two-year certificate and roll that into another new five-year certificate. If you roll over each certificate as it matures at the end of each year, by the end of five years, you’ll have a five-year certificate maturing each year. Every time one expires, you have the option to withdraw that money along with the earnings at the five-year rate.

Are CDs and share certificates safe?

Both CDs and share certificates are among the safest investments you can make because your funds are guaranteed by the federal government in exactly the same way as money in any other type of savings’ account is in the event of the collapse of your bank or credit union.

Financial industry regulations require that funds deposited at banks and credit unions be backed by separate institutions, namely the Federal Deposit Insurance Corporation (FDIC) in the case of banks and the Credit Union deposits are federally insured up to $250,000 by the National Credit Union Association (NCUA), an agency of the U.S. Federal Government. At some credit unions, such as SCU Credit Union, Member shares and deposits in excess of NCUA limits are fully insured by the Massachusetts Credit Union Share Insurance Corporation (MSIC).

FDIC is the agency that insures deposits at banks in case of a bank failure. As of the September 2023, about 45% of all bank deposits were uninsured, according to the FDIC. If you have more than $250,000 in a bank account you owe it to yourself to check if your money is insured.

SCU Credit Union is insured by both the National Credit Union Association (NCUA) and Massachusetts Shared Insured Corporation (MSIC). Your money is 100% insured regardless of the amount at SCU Credit Union. MSIC provides Excess Share and Deposit Insurance to all members of SCU Credit Union automatically. The coverage is a benefit of membership and comes at no direct cost to you. MSIC insures the portion of any legal, verifiable share or deposit account that exceeds NCUSIF coverage with no limit.

We're just like you - local and proud of it. Our strong bond with members and neighbors is something we truly value. That's why being active in the community means the world to us. The money you put into SCU Credit Union stays in your community.

When it comes to choosing where to manage your money, the choice between a credit union and a bank is up to you. We invite you to learn more about our wide array of savings products and see how SCU Credit Union can help your money grow. Here at SCU Credit Union, we pride ourselves on being a credit union you will love. Your money is 100% safe. 100% insured.

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