Share Certificates vs Certificates of Deposit


What Are Share Certificates and CDs?

When considering investment options, individuals often ponder the differences between share certificates and certificates of deposit (CDs). Share certificates, commonly referred to as “share account” or “stock certificate,” are a type of savings account offered by credit unions. They function similarly to CDs, which are provided by banks. Both share certificates and CDs are considered low-risk investment certificates , as the funds deposited are insured, typically by the National Credit Union Administration or the Federal Deposit Insurance Corporation for CDs, up to a certain amount.

Share certificates and CDs provide a fixed rate of return, allowing individuals to earn interest on the money held in the account. However, there are notable distinctions between the two. While both share certificates and CDs enable the account holder to earn a higher interest than a regular savings account, CDs generally offer higher rates compared to share certificates. Additionally, withdrawing money from a share certificate or CD before the maturity date may incur penalties, although the penalties for early withdrawal can vary.

Key Features and Benefits

Share Certificates and Certificates of Deposit (CDs) share commonalities and distinctions in terms of interest rates, withdrawals, penalties, insured deposits, dividends, and ownership. Both accounts necessitate a committed deposit period for higher guaranteed returns, surpassing regular savings. Early withdrawals incur penalties in both cases. Importantly, federal insurance covers deposits up to $250,000, ensuring security. Credit unions, unique in their cooperative structure, pay dividends to member-owners, fostering a sense of ownership. In contrast, banks pay interest to customers. These financial tools provide a nuanced landscape where interest rates, ownership structures, and payout mechanisms contribute to a diverse range of investment options. Moreover, the potential for higher returns makes shares more attractive, offering an added dimension to the investment landscape.

How Do Share Certificates and CDs Work?

Share certificates and certificates of deposit (CDs) function as specialized savings accounts provided by credit unions and banks, each with distinctive features. When you open a share certificate, your deposit is an investment in the credit union, earning a fixed rate of return known as interest. Similarly, a CD involves depositing a specific amount of money, with interest accruing on it. Both instruments typically offer higher interest rates compared to regular savings accounts. The key difference lies in the offering institutions – credit unions provide share certificates, while banks typically offer CDs. These financial tools involve considerations such as deposits, terms, interest/dividends, early withdrawal penalties, compounding, maturity options, proxies, and records, shaping the overall investment experience.

Disadvantages of Physical Share Certificates

Physical share certificates come with notable disadvantages, including an early withdrawal penalty that discourages investors from accessing their funds before the maturity date. While these certificates are insured by the National Credit Union Share Insurance Fund, the return on investment might be comparatively lower than other options. Moreover, managing physical share certificates involves expenses and labor for transactions, ownership tracking, and verification. In the event of loss or damage, the process of obtaining a replacement can be cumbersome. These drawbacks, coupled with limited accessibility and potential lower returns, may dissuade investors from opting for physical share certificates, prompting a preference for more flexible and convenient investment alternatives. Experts recommend including shares in an investment portfolio of at least 20 companies to reduce the likelihood of capital loss from market risk. 

Special Considerations

The early history of share certificates traces back to 1606 when the first known certificate was issued. Over time, the landscape has evolved, and electronic registration has become prevalent, rendering physical certificates rare in many countries. Today, shares are often transferred and registered electronically, eliminating the need for tangible documentation.

In the context of this evolution, certain collectors hold a unique interest in old and historic share certificates. These physical artifacts, once commonplace, now serve as collectibles, capturing the essence of bygone financial eras. While electronic registration has streamlined modern financial systems, the significance of early share certificates is not lost on those who appreciate the historical and tangible aspects of financial instruments. Despite the shift towards digital transactions, the legacy of early share certificates endures, embodying a crucial chapter in the history of financial markets.

Choosing Between Share Certificates and CDs

Choosing between share certificates and CDs involves a nuanced decision based on factors like membership benefits, community focus, voting rights, convenience, liquidity, top rates, and yield maximization. To open share certificates, one must join a credit union, offering community-oriented advantages. CDs, available through various institutions, provide convenience but may have restricted access. High-yield savings accounts offer flexibility without early withdrawal penalties. Maximizing yield requires careful comparison shopping. The choice depends on individual financial goals and preferences regarding community-focused benefits.

What If My Share Certificate/CD Is Lost or Stolen?

In the unfortunate event of a lost or stolen share certificate or CD, ownership rights and claims are not forfeited. To safeguard against unauthorized transactions, customers should promptly issue stop transfers, detailing the loss in a statement of facts. Purchasing an indemnity bond further protects against potential losses. The next crucial step is formally requesting replacement certificates or CDs from the financial institution. By following these procedures, individuals can mitigate the impact of the loss and ensure the security of their investment.

Tax Implications of Transferring Certificates

Inheriting share certificates or CDs typically doesn’t trigger taxes. However, selling inherited instruments may result in tax liabilities, emphasizing the need for individuals to consider the potential tax implications before transferring or liquidating such assets.


Is a share certificate a good investment?

A share certificate can be a good investment option for those looking for a higher interest rate than a regular savings account or money market account. When you open a share certificate, the funds are held for a fixed term, and in return, you can typically earn a higher interest rate. This makes it a popular choice for individuals who want to earn a guaranteed return on their money.

Can you cash out a share certificate?

Yes, you can cash out a share certificate, but it may come with a penalty for early withdrawal. Most share certificates have a fixed term, and if you need to access your money before the term is up, you may incur a penalty. However, some credit unions may offer more flexible options for withdrawing funds from a share certificate, so it’s important to check the terms and conditions before opening one.

If Stock Certificates Are Transferred on Death, What Is the Tax?

When stock certificates are transferred on death, the tax implications may vary depending on factors such as the value of the assets and the applicable tax laws. In the United States, share certificates and CDs are insured by the National Credit Union Share Insurance Fund or the Federal Deposit Insurance Corporation, respectively, providing protection for shareholders in credit unions or account holders in banks. It’s essential to consult with a tax professional to understand the tax implications of stock certificate transfers in specific situations.


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