[ad_1]
Greg Hinsdale/Imagebank/Getty Images
Both Certificates of Deposits (CDs) and stock certificates are low-risk savings accounts that allow you to grow your money at a fixed rate. The main difference between them is that CDs are products offered by commercial banks, whereas stock certificates are offered by member-owned non-profit credit unions.
Differences between CDs and stock certificates
a CDs A type of bank account that is opened for a specified period and earns interest at a guaranteed rate. Generally, account holders cannot withdraw principal from their account until the CD term expires. Failure to do so will result in an early withdrawal penalty. There are more flexible types of CDs, such as non-penalty CDs and bump-up CDs.
FDIC Insurance Bank CDs are guaranteed up to $250,000 per depositor, per ownership category, per institution.
share a certificateSometimes called a credit union CD, it is almost identical to a CD except that it is provided by a credit union. The return on stock certificates is called dividends. Because credit unions are not-for-profit, their profits are essentially distributed to their members, who are shareholders of the credit union, in the form of dividends. Dividends work similarly to CD yields, but some credit unions may offer higher rates or lower fees as a result of sharing profits.
Like CDs, stock certificates have varying terms and generally cannot be liquidated without penalty until the end of the term. Federal insurance credit unions are backed by the NCUA, not the FDIC, but the NCUA insurance guarantees coverage of up to $250,000 per depositor, per ownership category, and per institution.
| CDs | share a certificate |
|---|---|
| bank offer | credit union offer |
| pay interest | Dividend payment |
| Get FDIC Insurance | Get NCUA Insurance |
Should I join a credit union?
To open a stock certificate, you must first become a member of the credit union that issues the stock certificate. Credit unions often serve a particular community, region, type of employee, or association. If you are considering joining a credit union, make sure you meet the membership requirements.
Benefits of joining a credit union include:
- low fees and high yields: Profits are shared among all members of the credit union, so more money is returned to members in the form of dividends and lower fees. However, some online banks may offer more competitive rates.
- community focused: Credit union members usually have some things in common, such as living in the same area, working in the same field, or being part of the same organization. As such, credit unions are often committed to serving the community and may provide essential resources and support to the community.
- Decisive power: All members of a credit union also have ownership of the credit union. Members have a say in how the credit union operates, including voting for board members.
If you are interested in joining a credit union, check to see if there are any credit unions available to residents in your community. You can also find credit unions that are open to members of your profession or the organization you belong to.
When a savings account is better
Standard CDs and stock certificates have important caveats. You will not be able to access the money in your account until the term expires. The reward for locking your money for a period of time is usually a higher payout than what a savings account offers, but it may not be worth it if you need more liquidity.
CDs and stock certificates are useful for saving for specific purposes, such as vacation funds. You can choose a time period that aligns with your goals so that the money is available when you need it. Earn a guaranteed rate until the end of the term.
Not suitable for emergency funds or other funds that need more access. Normally you can’t deposit or withdraw money from CDs or stock certificates, but you can with a savings account. Many institutions limit the number of times you can withdraw money from your savings account to six times a month, but there is no penalty for withdrawing money from your account once in a while when you need to.
In addition, some savings accounts offer very competitive interest rates, although CDs and stock certificates often offer higher interest rates. Typically, the highest savings rates offered by online savings accounts are the same as, or sometimes higher than, CD products.
Conclusion
If you’re considering sharing CDs or certificates, consider your priorities. Sometimes it makes more sense and is 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, we recommend shopping around.
[ad_2]
Source link