Both 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 share certificates are offered by member-owned, not-for-profit credit unions.

CDs and share certificates: How they differ

A CD is a type of bank account that is opened for a predetermined amount of time and earns interest at a guaranteed rate. Generally, the account holder cannot withdraw the principal from the account until the CD’s term ends, or else they’ll incur an early withdrawal penalty. There are some types of CDs that may allow for more flexibility, such as no-penalty CDs and bump-up CDs.

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

Share certificates, sometimes referred to as credit union CDs, are largely the same as CDs, except they’re offered by credit unions. The earnings on share 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 — in the form of dividends. Dividends function the same as yields on CDs, although some credit unions may offer higher rates or lower fees as a result of sharing profits.

Like CDs, share certificates come in a variety of term lengths, and they generally cannot be liquidated without a 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 category, per institution, are covered.

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

Should you join a credit union?

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

Some benefits of joining a credit union include:

  • Lower fees and higher yields: Because profits are shared among all members of the credit union, more money is funneled back to the members in the form of dividends and lower fees. However, some online banks may still offer more competitive rates.
  • Community-focused: Credit unions’ members typically have some commonality, whether that be living in the same region, working in a similar field or being part of the same organization. As such, credit unions are often committed to serving their community and may provide essential resources and support to the community.
  • Decision power: Every member of a credit union also has ownership in the credit union. Members have a say in how the credit union is run, including getting to vote on the governing board members.

If you’re interested in joining a credit union, see if there are any that are open to residents of your community. You may also find credit unions that are open to members of your profession or to members of organizations to which you belong.

When a savings account is better

Standard CDs and share certificates come with an important caveat: You don’t have access to the money in the account until the term is up, or you may incur a lofty penalty. The reward for locking your money up for that set period of time is typically a higher payout than what’s offered on savings accounts, but it might not be worth it if you need more liquidity.

CDs and share certificates are useful when saving for a specific goal, such as a vacation fund. You can choose a term that aligns with the goal, so that the money becomes available when you need it. You’ll earn a guaranteed rate until the term is up.

They’re not great options for an emergency fund or for other funds that may require more access. You generally can’t add to or withdraw money from a CD or share certificate, but you can do so with a savings account. While many institutions limit how often you can withdraw funds from a savings account to six times per month, you won’t be punished for taking money from the account occasionally, when it’s needed.

Plus, although CDs and share certificates often have higher rates, some savings accounts are offering highly competitive rates. The top savings rates, usually offered on online savings accounts, may be similar to or even greater than rates on CD products.

Bottom line

If you’re looking into CDs or share certificates, consider what your priorities are. In some cases, it might make more sense and be more convenient 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.