What is a Share Certificate?

The term “share certificate” can have two meanings. The first meaning refers to a document issued by a company that is used as proof of a shareholder’s ownership in the company. The second meaning of “share certificate” refers to a product offered by credit unions that’s very similar to a certificate of deposit. 

In this article, we’ll explain what a share certificate is and the different contexts the term is used in. Let’s start with the more common usage, which is related to companies and their shares.

Share certificates as documents proving ownership of shares

A share certificate is a document that essentially functions as a receipt showing that a person purchased and owns stock in a company. In these days, it’s not too common for companies to issue physical share certificates to owners of their stock. More frequently, share ownership is recorded in digital form.

A share certificate will typically include several pieces of information, including:

• Unique certificate ID
• The name of the company
• The name and address of the shareholder
• The number of shares owned by the shareholder
• The class of shares owned
• Issuance date
• Amount of money paid for the shares

The reason why physical share certificates have fallen out of favor is because issuing them and tracking changes in ownership is very expensive, usually requiring a team of employees that’s solely dedicated to managing the company’s system for physical share certificates.

In most modern markets, transfers of the ownership of stocks are handled by a central securities depository (CSD). CSDs track changes in share ownership through book entries, forgoing the time-intensive and costly process of transfering physical share certificates.

If you have an old share certificate for a company, there’s a chance it could be worth something. It could have value as a collectible, but if the company that issued the certificate is still traded publicly, it could still represent ownership in the company. If you do have old share certificates, we recommend you contact your stockbroker for more information.

Share certificates offered by credit unions

The term “share certificate” can also refer to a product offered by credit unions. In practice, it’s very similar to certificates of deposit (CDs) offered by banks. The reason why the credit union version of a CD is called a share certificate is because depositors in a credit union are its members and owners.

How do share certificates work?

A share certificate offers gives depositors the ability to earn a fixed annual percentage yield (APY) for a specified period of time. The earnings you make from money deposited in a share certificate account are called dividends.

The duration of share certificate investments can vary significantly, ranging from 6 months to 5 years of even longer in some cases. However, you need to keep your money in the share certificate account for the period of time you agreed to if you want to earn the advertised — in most cases, an early withdrawal will incur a penalty.

In the United States, share certificate accounts are insured for up to $250,000 by the National Credit Union Administration (NCUA). 

In addition to share certificate accounts, credit unions also offer share accounts, which are similar to the savings accounts products offered by banks. Compared to share certificate accounts, share accounts pay variable dividends and not fixed dividends. 

What are the advantages of a share certificate?

The main advantage of investing in share certificate accounts is predictability — you know exactly how much in dividends you will be earning and exactly when the investment will mature (end). However, share certificates offer smaller potential returns than riskier investments such as buying stocks.

Can I add money to a share certificate?

The answer to this question will depend on which credit union you have a share certificate account with. For example, the United Nations Federal Credit Union (UNFCU) offers a share certificate where members can make additional deposits at any time during its term. 

Meanwhile, we have also been able to find many share certificates offered by various credit unions where it’s not possible to make additional deposits after the initial deposit. However, members are usually able to increase the balance of their share certificate account after their investment ends.

The best way to learn if you can add money to a share certificate is to contact the specific credit union you want to open a share certificate account with.

The bottom line

Hopefully, our article helped you explain the different meanings of the term “share certificate”. It can either describe a document showing a person’s stock ownership, or describe an investment product offered by credit unions. 

When it comes to share certificate accounts provided by credit unions, they can be a compelling choice for those looking for a low-risk investment with predictable returns. Meanwhile, those with a higher risk appetite will likely be better off investing in the stock market.