How Do Share Certificates Work?

A share certificate is a great way to build long-term savings. These accounts offer competitive dividend rates and can help you meet your financial goals. Before opening one, it's important to understand how they work—especially how rates and terms impact your returns. So, how do share certificates work? Let’s explore what affects them and how you can maximize your returns.

Share Certificates vs. Certificates of Deposit

You may hear both of these terms around financial institutions, but there are some key differences. While they are both deposit accounts, CDs (Certificates of Deposit) are offered by banks, and share certificates are offered by credit unions.

Because credit unions are member-owned, not-for-profit financial institutions, share certificates pay out dividends instead of interest. This means that with a share certificate, profits are returned to you, as opposed to interest rates with a bank, which is considered the cost of doing business.

They’re also insured by different institutions; CDs with banks are insured by the FDIC, and share certificates are insured by the NCUA.

How Do Share Certificate Rates Work?

When looking for certificates, there are rates to consider. Share certificate returns are typically expressed in two ways: the dividend rate, which is the stated return paid out by the credit union, and the Annual Percentage Yield (APY), which includes the effect of compounding over a year.

Share certificate rates are influenced by broader economic factors, such as inflation and decisions by the Federal Reserve. Since the economy ebbs and flows constantly, it’s important to know where rates currently stand before choosing a certificate and the strategy behind it.

Rates can also be fixed or variable. Fixed rates offer predictable returns over the full term, while variable rates may change based on market conditions. Rates can also vary depending on the certificate’s term.

Maximizing Returns

To maximize your returns, consider opening a certificate when dividend rates are higher, and choose a term that aligns with your financial timeline. You can also ladder multiple certificates to take advantage of varying terms and rates.

Finding the Right Share Certificate Rates

Now that you know how share certificate rates work, compare your options to find the most optimal strategy for your needs. Consider factors like APY, dividend rates, fees, and minimum deposits in your search.

Cyprus Credit Union’s certificate rates are ideal if you’re looking for ways to start small and watch your savings grow. Open an account with as little as $20 at the same rates as traditional certificates.

Enjoy high dividend rates and the flexibility to make ongoing contributions throughout the term. Plus, you’ll get perks like rate bumps and a one-time early withdrawal. Funds are also insured for up to $250,000, so you have peace of mind knowing your hard-earned money is kept safe.

Learn more and open a new share certificate with Cyprus Credit Union here.