CDs Vs. Stock Certificates: What’s the Difference?

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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 stock certificates are offered by non-profit, member-owned credit unions.

CDs and stock certificates: how they differ

A CD is a type of bank account that is open for a predetermined term and earns interest at a guaranteed rate. Generally, the account holder cannot withdraw the principal from the account before the end of the term of the CD, otherwise they will incur an early withdrawal penalty. There are certain types of CDs that can allow for more flexibility, such as no-penalty CDs and replacement CDs.

CDs at FDIC-insured banks are insured up to $250,000 per depositor, per ownership class, per institution.

Share certificates, sometimes referred to as credit union CDs, are largely the same as CDs, except that they are offered by credit unions. Earnings on stock 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—as dividends. Dividends work similarly to returns on CDs, although some credit unions may offer higher rates or lower fees due to profit sharing.

Like CDs, stock certificates are available in a variety of terms, and they generally cannot be liquidated without penalty until the end of the term. 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 class, per institution, is covered.

CD Share certificates
Offered by banks Offered by credit unions
Pay in interest Pay in dividends
FDIC insured Insured by the NCUA

Should you join a fund?

To open a share certificate, you must first be a member of a caisse that offers them. Credit unions often serve a specific community, geographic area, type of employee, or association. Be sure to meet membership requirements if you are considering a credit union.

Some benefits of joining a credit union include:

  • Lower fees and higher returns: Since profits are shared among all members of the credit union, more money is funneled to members in the form of dividends and reduced fees. However, some online banks can still offer more competitive rates.
  • Community driven: Members of credit unions usually have things in common, whether it’s living in the same area, working in a similar field or being part of the same organization. As such, credit unions are often committed to serving their community and can provide essential resources and support to the community.
  • Power of decision: Each member of a credit union is also the owner of the credit union. Members have a say in the management of the credit union, including voting on board members.

If you want to join a credit union, see if there are any that are open to residents of your community. You can also find credit unions open to members of your profession or members of organizations to which you belong.

When a savings account is better

Standard CDs and stock certificates come with an important caveat: you don’t have access to the money in the account until the term is up, or you could face a hefty penalty. The reward for locking in your money for this set period is usually a higher payout than is offered on savings accounts, but it may not be worth it if you need more cash.

CDs and stock certificates are useful when saving for a specific goal, such as a vacation fund. You can choose a term that fits the purpose, so the money is there when you need it. You will earn a guaranteed rate until the end of the term.

These are not great options for an emergency fund or for other funds that may need more access. You generally cannot add or withdraw money from a CD or stock certificate, but you can with a savings account. While many institutions limit how often you can withdraw funds from a savings account to six times a month, you won’t be punished for withdrawing money from the account occasionally, when it is necessary.

Also, although CDs and stock certificates often have higher rates, some savings accounts offer very competitive rates. The highest savings rates, usually offered on online savings accounts, can be similar or even higher than the rates for CD products.

At the end of the line

If you’re looking for CDs or stock certificates, think about your priorities. In some cases, it may make more sense and convenience to open an account with a bank or credit union where you already have another account. But if you’re looking for the best yields, it’s a good idea to shop around.

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