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What is a credit union share certificate account?

Share certificates are a type of savings account offered only by credit unions. Share certificates are equivalent to certificates of deposit that are offered exclusively by banks. The only difference between share certificates and certificates of deposit is the name.

Each financial institution will offer different interest rates and terms on share certificates, so be sure to shop around to find the option that’s best for your investment strategy.
At Credit Union of Southern California (CU SoCal), we make opening a share certificate easy!
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our mortgages, home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.

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How do share certificates work?

To open a credit union share certificate account requires that a specific amount of money be deposited as an opening account balance. Credit union share certificates have a specific term (timeframe) that the money must remain in the account during which a specific dividend rate is earned.
For example, a credit union may offer a six-month share certificate with a $1,000 minimum opening balance and earn a 2.37% dividend rate and 2.40% APY (Annual Percentage Yield).
The interest earned on a share certificate is expressed as a “dividend yield.” This is because credit unions are member-owned organizations in which customers are members and shareholders in the credit union. When a share certificate earns interest, it’s considered a dividend.

Terms to know

Here are some of the common terms associated with share certificates. Understanding these terms will help you decide if a share certificate is right for you.
Principal. This is the original amount you deposited. Interest is what is earned based on the principal amount.
Term. This is the length of time the money must stay in the account.
Date of maturity. This is the date upon when the term ends.

Benefits of share certificates

Share certificates have several benefits that make them popular:
Guaranteed rate of return. Share certificates guarantee a specific rate of return (dividend) based on the certificate’s stated term and APY (Annual Percentage Yield). Credit union rates of return may vary.
Flexible term options. Some credit unions offer “flex accounts” that allow account holders to make additional deposits during the term of the certificate. Some may also allow a one-time withdrawal of some of the funds without paying a penalty if the minimum required balance is maintained.
Federally insured. All credit union deposits are insured by the National Credit Union Administration (NCUA) for up to $250,000. The NCUA is an independent agency created by the U.S. government to regulate and protect credit unions and their owners. This makes credit unions as safe as traditional banks. Bank deposits are federally insured by the FDIC for up to 250,000.
Special offers and features. Some credit unions may offer a one-time withdrawal or one-time/unlimited add-on option that lets you deposit more money into the account up to a specific threshold amount.

How do share certificates compare?

Here’s how share certificates compare to other savings account options:
Share certificates vs. savings accounts. Share certificates will typically earn a higher interest rate than an interest-bearing savings account. Savings accounts let you access your money whenever you need it.
Share certificates vs. money market accounts. A money market account is opened like a regular savings account, and allows for a limited number of withdrawals each month. Share certificates typically earn a higher interest rate than money market accounts of the same balance amount.
Share certificates vs. retirement accounts. A traditional Individual Retirement Account (IRA), Roth IRA, and 401(k) are types of accounts that help people save money for retirement by earning interest that becomes accessible to the account holder in retirement. Most credit unions offer IRA share certificates.

How to choose a share certificate

First consider how much money you have that you can afford to dedicate to a share certificate. Before investing in a share certificate, you should be confident that you won’t need the money to pay your bills or debts during the term that the certificate is open for. During this time, you will not be able to withdraw your money unless the share certificate allows a one-time withdrawal.
Long-term share certificates (one year or more) tend to offer higher interest rates, but your money will be inaccessible for this term, unless you choose a flexible term share certificate. A shorter-term share certificate of three, six, or nine months could be a better compromise if you have money to invest and need a shorter term.

Share certificate investment strategies

Share certificates are often used in different types of investment strategies. Here are the most common strategies that credit unions offer:

The Ladder strategy

This strategy involves opening several (three or four) certificates of deposit at the same time and in equal amounts. These certificates comprise a combination of short-term to progressively longer-term certificates. The ladder structure represents staggered maturity date options that your credit union offers. For example, the first rung, second rung, third rung, and fourth rung represent four certificate terms: three-month, six-month, nine-month, and one year.
The ladder strategy gives you the best of both worlds, short and long-term interest. Each certificate has a specific term and interest rate. The benefit is you will always have a portion of your money earning interest. Some credit unions provide the option to automatically roll money from one certificate of deposit into a new one when the ladder matures.

The Barbell strategy

A barbell is shaped with weight on both ends and a bar in the middle. This graphic is used to describe a certificate investment strategy in which you put money into short-term and long-term certificates. In the short term you earn dividends and have access to your money, while the long-term certificates earn a higher interest rate.

The Bullet strategy

This involves investing in several certificates that mature on the same date. This is a focused investment strategy to yield dividends quickly, rather than investing in the long term.

Is investing in a share certificate a good idea?

If you have extra money available for investing (after you pay your bills and pay-off high-interest credit card debt), then share certificates may be a good idea.
The investments you choose should be based on your income, age, years until retirement, expenses/debts, and your overall financial goals.
Share certificates earn higher interest than you’d get with a regular savings account, so a share certificate can be a good option – if you won’t need the money on hand for paying your bills.

Why savvy consumers choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

Get Started on Your Share Certificate Today!

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Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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