What Is a Share Account?
A share account is a type of savings or checking account offered by credit unions. Unlike traditional banks, credit unions are member-owned financial cooperatives, and when you open a share account, you become a partial owner of the institution. The term “share” refers to your ownership stake in the credit union, and your account is often called a “share savings account” or “share draft account” (for checking).
How Does a Share Account Work?
When you deposit money into a share account, you are not just saving money—you are purchasing a share in the credit union. This means you have a voice in how the credit union is run, including voting rights in elections for the board of directors. Share accounts function much like traditional savings or checking accounts, but with a few key differences:
- Your money earns dividends, not interest, because you are a member-owner.
- Dividends are paid out of the credit union’s profits and are distributed to members.
- Share accounts are federally insured up to $250,000 by the National Credit Union Administration (NCUA).
- Most credit unions require a minimum deposit to open a share account, often as low as $5.
Types of Share Accounts
Credit unions offer several types of share accounts to meet different financial needs:
Share Savings Account
A share savings account is the basic account you open when joining a credit union. It establishes your membership and ownership stake. You can deposit money, earn dividends, and use it as a foundation for other services like loans or checking accounts.
Share Draft Account
A share draft account is the credit union equivalent of a checking account. It allows you to make withdrawals, write checks, and use a debit card. Like a share savings account, it represents your ownership in the credit union.
Share Certificate Account
A share certificate account is similar to a certificate of deposit (CD) at a bank. It is a time deposit account where you agree to leave your money in the account for a set period in exchange for a higher dividend rate.
Money Market Share Account
Some credit unions offer money market share accounts, which combine features of savings and checking accounts. These accounts typically offer higher dividend rates but may have higher minimum balance requirements and limited withdrawals.
Benefits of a Share Account
Share accounts offer several advantages over traditional bank accounts:
- Lower Fees: Credit unions are nonprofit organizations, so they often charge lower fees than banks.
- Better Dividend Rates: Share accounts typically offer higher dividend rates than bank savings accounts.
- Member Ownership: As a member-owner, you have a voice in the credit union’s operations and can vote in elections.
- Insurance: Share accounts are insured up to $250,000 by the NCUA, providing security for your deposits.
- Shared Branching: Many credit unions participate in shared branching networks, allowing you to access your accounts at other credit unions without extra fees.
- Customer Service: Credit unions often provide more personalized service than large banks.
Share Account vs. Bank Savings Account
While share accounts and bank savings accounts are similar in function, there are some important differences:
| Feature | Share Account (Credit Union) | Bank Savings Account |
|---|---|---|
| Ownership | Member-owner of the credit union | No ownership in the bank |
| Earnings | Dividends (from credit union profits) | Interest (from bank earnings) |
| Fees | Typically lower | May be higher |
| Insurance | NCUA up to $250,000 | FDIC up to $250,000 |
| Branch Access | Shared branching networks | Limited to bank branches |
| Customer Service | Often more personalized | May be less personalized |
How to Open a Share Account
Opening a share account is a straightforward process:
- Find a Credit Union: Credit unions have membership requirements based on factors like where you live, work, go to school, or worship. Some are open to anyone in a specific geographic area, while others are for employees of certain organizations or members of specific groups.
- Meet Membership Requirements: Provide proof of eligibility, such as a driver’s license, pay stub, or other documentation.
- Open the Account: You can usually open a share account online or in person. You’ll need to make a minimum deposit, often $5 or more.
- Start Using Your Account: Once your account is open, you can deposit money, earn dividends, and access other credit union services.
Common Questions About Share Accounts
What is the minimum deposit to open a share account?
The minimum deposit varies by credit union but is often as low as $5.
Are share accounts insured?
Yes, share accounts are insured up to $250,000 by the NCUA.
Can I have multiple share accounts at the same credit union?
Yes, you can have multiple share accounts, such as a share savings account and a share draft account.
Do I earn interest or dividends on a share account?
You earn dividends, not interest, because you are a member-owner of the credit union.
Can I access my share account at other credit unions?
Many credit unions participate in shared branching networks, allowing you to access your accounts at other credit unions without extra fees.
Real-World Uses of Share Accounts
Share accounts are used for a variety of financial goals:
- Emergency Fund: A share savings account is a safe place to keep money for unexpected expenses.
- Everyday Banking: A share draft account can be used for daily transactions, bill payments, and direct deposits.
- Long-Term Savings: A share certificate account is ideal for saving money for future goals, such as a vacation or a down payment on a house.
- Retirement Planning: Some credit unions offer IRAs and other retirement accounts that can be linked to your share account.
FAQs
Q: What is the difference between a share account and a bank account?
A: A share account is a savings or checking account at a credit union, where you are a member-owner. A bank account is at a traditional bank, where you are a customer, not an owner.
Q: Can anyone open a share account?
A: No, you must meet the credit union’s membership requirements, which may be based on where you live, work, or other affiliations.
Q: Are dividends on share accounts taxable?
A: Yes, dividends earned on share accounts are generally taxable as income.
Q: Can I lose money in a share account?
A: No, your deposits are insured up to $250,000 by the NCUA, so your money is protected.
Q: What happens if the credit union fails?
A: If the credit union fails, your deposits are protected by NCUA insurance up to $250,000.
References
- What Is a Share Account? — 1st MidAmerica Credit Union. 2020-06-24. https://www.1stmidamerica.org/about-us/about/blog/blog/2020/06/24/what-is-a-share-account
- What Is a Share Savings Account? — SmartAsset.com. https://smartasset.com/checking-account/what-is-a-share-savings-account
- Glossary: Account Share Type — MyCreditUnion.gov. https://mycreditunion.gov/sites/default/page-content/share-insurance-estimator/html/glossary_calculator.html?tbstyle=green
This article is general information, not personal financial advice. Consider your own situation, or speak with a licensed adviser, before acting on it.
