Share Certificate vs CD: What’s The Difference?

The main difference between share certificates and certificates of deposit (CDs) is that share certificates are offered by credit unions, and CDs are offered by banks. 

Both are low-risk investment products where the customer deposits money into an account and earns fixed interest or dividends on the deposit. With both CDs and share certificates, there are usually restrictions to withdrawing early (there is usually a penalty for early withdrawals).

Share certificate vs. CD — Which one should you choose?

If you want to invest your money in a low-risk investment product with fixed returns, you’ve likely encountered both share certificates and CDs as viable options. To help you decide between the two, let’s explore what is the difference between share certificates and CDs.

The earnings you’ll be making with a share certificate or a CD are fixed when you open the account. Technically speaking, the earnings you’ll be making on a share certificate are dividends, while the earnings you’ll be making on a CD are interest. In practice, this distinction is largely irrelevant for you as a customer and some institutions might even use the terms interchangeably. 

Earning a fixed percentage on your deposit, which is a feature of both share certificates and CDs, can be an advantage or disadvantage depending on the interest rate environment. If interest rates are falling, earning a fixed dividend or interest rate is favorable for you. Meanwhile, if interest rates are rising, you won’t benefit from the increase, as your rates are already locked in. 

In the United States, both CDs and share certificates are insured for up to $250,000 per depositor, per institution. However, they are insured by different institutions — CDs are insured by the FDIC (Federal Deposit Insurance Corporation), while share certificates are insured by the NCUA (National Credit Union Administration).

As investment products, share certificates and CDs serve practically the same purpose and are extremely similar in terms of their risks and returns. Ultimately, the decision boils down to whether you prefer being the customer of a bank or a member of a credit union.
 

What’s unique about a credit union?

So, we’ve established that the debate of share certificates vs. CDs boils down to whether you want to use a bank or be a member of a credit union. 

While banks and credit unions offer many similar services (checking and savings accounts, lending) the difference is that credit unions are not-for-profit institutions, while banks are for-profit institutions. 

Each credit union has limits on who can join, which is called its “field of membership” — a credit union’s membership might be restricted according to occupation, geographic area or other factors. After you join a credit union, you actually become a part owner of it and you can vote on the credit union’s policies and decisions. 

Credit unions generally offer lower fees and more personalized customer service. However, credit unions typically also fewer physical branches and offer a smaller variety of products compared to banks.

Should you invest in a share certificate / CD or a savings account?

As we’ve already discussed, share certificates and CDs are very similar investment products, as the biggest difference between the two is who issues them. 

Realistically, you’re more likely to face a decision of whether to invest your money in a share certificate / CD or a savings account instead. 

The biggest advantage of a savings account compared to CDs and share certificates is liquidity. Even though there are usually some limits to how many times you can withdraw money from a savings account in a specified period of time, savings accounts are much less restrictive than CDs and share certificates when it comes to withdrawing your money.

CDs and share certificates charge usually charge a hefty withdrawal penalty. So, if you’re depositing significant amounts of money into such products, make sure you have enough money on the side to take care of any emergencies that might happen in your life.

Share certificates and CDs typically offer higher interest rates than savings accounts. So, if you can afford to prioritize higher returns rather than flexibility, they might be a better choice for you.

The bottom line — There’s not much of a difference between term share certificates vs CDs

Hopefully, our article helped you understand the difference between share certificates and certificates of deposit (CDs). While the two products aren’t exactly the same, they perform very similarly as investments. The choice between the two mostly depends on whether you want to use a credit union or a bank.

If you’re looking to also expand your investment portfolio beyond low-risk investments such as CDs, check out our article exploring the best stocks to buy.