How Do Term Share Certificates Work?
- Term share certificates are credit unions' versions of certificates of deposit. Term share certificates are purchased for specific amounts and set periods of time, such as $1,000 for 90 days. During the term, interest accrues on the account; the amount cannot be withdrawn without paying an interest penalty.
- The advantages of term share certificates are identical to those of certificates of deposit, or bank CDs. They allow forced savings for a set period of time, and enable consumers to earn better interest rates than standard savings accounts.
In addition, there is no risk with term share certificates. This is a better deal than trying to invest in the stock market, which can be a highly risky venture for investors of all financial levels. - In an emergency, a term share certificate cannot be broken without paying a penalty, which is usually a bit higher than the interest that accrued on the account. However, this may be necessary in a true emergency situation such as a sudden job layoff.
- Term share certificates can also be used to guarantee loans at some credit unions, which helps members restore or build credit while saving a tangible asset.
- Term share certificates usually require a minimum of $1,000 to open, though some credit unions will allow those with $250 or $500 to enter the program. Most term share certificates are available only to U.S. citizens over the age of 18, though some credit unions may allow minors to enroll with parental consent.