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What Are Share Certificates? A Beginner's Guide

November 14, 2023 3 mins

As you research different ways to grow your savings, you may have noticed that Patelco and other credit unions offer share certificates. A share certificate lets you earn a higher interest rate with a guaranteed return for a set term (such as 11 months). Here’s how share certificates work and why they might be a good investment strategy for you.

What is a share certificate?

A share certificate is a type of savings account. When you have a share certificate, it means that a credit union agrees to pay a fixed interest rate on your initial deposit, which is held for a set period of time (or term). At Patelco, terms range from three to 60 months. The deposit amount determines the fixed dividend rate and annual percentage yield (APY).

The interest, or fixed dividend rate, is used to calculate how much interest the share certificate earns each month. The APY is the effective annual rate of return based upon the interest rate and includes the effect of compounding interest.

And if you take money out before the end of the specified term, you’ll likely have to pay an early withdrawal penalty.

Share certificates vs. CDs

The key difference between share certificates and certificates of deposit (CDs) is that share certificates are only issued by credit unions and CDs are only issued by banks. Both accounts have fixed interest rates for set term lengths, and both have a potential early withdrawal penalty.

Share certificates and CDs are both insured for up to $250,000 (up to $500,000 for joint accounts).

How do share certificates work?

When a credit union member deposits a certain amount of money into a share certificate account, the account earns interest according to the terms of the agreement or contract. Dividends are compounded monthly and credited at maturity when the term is less than a year, or monthly when the term is one year or more.

For example, a hypothetical share certificate has a term of 3 months with 1.00% interest (and 1.00% APY). If you opened the share certificate with $250, at maturity, the account’s ending balance would be $250.63.

If there were a hypothetical share certificate with a 60-month term and a 2.96 percent interest rate (and 3.00% APY), and you deposited $1,000 for that share certificate, the account would earn $159.40 over its lifetime – for an ending balance of $1,159.40.

(Our rates page lists both the percentage rate and APY for our certificates.)

An IRA share certificate lets you invest a fixed amount for a fixed time period and earn a fixed rate of return, with all the tax benefits of a typical IRA.”

What is an IRA share certificate?

An IRA share certificate combines an individual retirement account (IRA) with a share certificate. It’s a tool to save for retirement when market volatility may be a concern, perhaps during uncertain economic times.

Simply put, an IRA share certificate lets you invest a fixed amount for a fixed time period and earn a fixed rate of return, with all the tax benefits of a typical IRA.1

Benefits of share certificates

A share certificate offers a higher fixed interest rate than regular savings accounts, so it can be a good investment strategy if you have extra money for investing and don’t need to keep your money liquid.

A share certificate is considered a safe investment because it is insured by NCUA, so there’s no risk of losing money unless you withdraw early.

If you’re wondering if a share certificate from Patelco is a good choice for you, get personalized financial advice or open a share certificate account today.

1 Patelco does not provide tax advice. Please consult a tax advisor for tax advice.


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