What is the difference between a share certificate and a certificate of deposit?


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  • Stock certificates are issued by credit unions, while certificates of deposit are issued by banks.
  • Both investment vehicles are low risk options with fixed interest rates for fixed terms.
  • You will usually pay an early withdrawal penalty if you withdraw money before the end of your term.
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A certificate of deposit or a stock certificate is a low risk option for growing your money with a stable interest rate. Here’s what you need to know about these investing tools.

Similarities and differences between share certificates and CDs

Share certificates and CDs are designed as relatively long-term investment vehicles; while you can get one for as little as three months, many CD deals last at least a year.

As a general rule, the longer the term of a share certificate or certificate of deposit, the higher the interest rate you will receive. Both types of investments usually come with early withdrawal penalties if you withdraw your money before the end of your term, which can eat into your income.

The main difference between share certificates and certificates of deposit is that share certificates are issued by

credit unions
, while certificates of deposit are issued by banks. Stock certificates are guaranteed by the National Credit Union Share Insurance Fund, while the FDIC insures CDs in banks.

Who should invest in a share certificate or CD?

Both investment vehicles are generally considered to be extremely safe, so you should consider them if you are risk averse or near retirement and don’t want to bet your money is losing value.

High yield savings accounts

money market accounts
have variable rates, so your money could potentially earn a lower rate of return than a locked-in CD or share certificate.

However, if you are younger and want higher returns, you may want to consider investing in stocks, an exchange-traded fund, or an index fund.

What are the alternatives to share certificates and CDs?

Although CDs are solid investment tools, they do have their drawbacks. For example, you probably won’t be able to withdraw your money before your term expires, or you will face an early withdrawal penalty that will reduce your income. If you are interested in another investment vehicle, consider these options:

  • High yield savings account. These accounts usually have interest rates comparable to CDs and share certificates, depending on the length of the term. However, interest rates can go up and down with a high yield savings account, as opposed to the fixed rate you get with a stock certificate or CD.
  • Money market account. These are interest-bearing accounts offered by banks and credit unions. Unlike savings accounts, CDs, and stock certificates, you can often get checks and a debit card with a money market account, similar to a regular checking account.
  • Invest in the stock market. This method has the highest return potential, but there is also a significant risk of losing money. Stock market investments are not insured by the government.

Stock certificates and certificates of deposit aren’t much different, so the choice really comes down to whether you’d rather do business with a credit union or a bank.

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