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What exactly are share certificates and CDs and how are they different?
Also, why might you consider investing in them?
Read on to learn more.
What Is a Certificate of Deposit?
Certificates of depositare another punch in of savings account that pays interest for a specific term length.
After the term ends, the CD matures and the money is returned to you.
They are FDIC-insured up to $250,000.
Most CDs carry early withdrawal penalties.
Although CDs share the same basic structure, there are a variety of CDs that you might purchase.
Depending on the term of your CD, it may be paid monthly, quarterly or annually.
If you reinvest your payments, youll earn compound interest.
What Is a Share Certificate?
Share certificates are essentially identical to their much better-known kin, certificates of deposit.
The primary difference is that while CDs are offered bybanks, share certificates are offered by credit unions.
For certificates with longer terms, dividends are usually paid monthly.
Be sure to read the fine print on any investment you make, including share certificates.
Although most certificates compound monthly, for example, some may only compound quarterly or even annually.
That guarantees a return on your investment at the end of the term.
However, if you do this before the CD term ends, its considered an early withdrawal.
You would be covered up to $250,000 for each account, for each deposit account punch in.
Here are some of the primary ones.
Bank Account vs. Credit Union Membership
Credit unions issue share certificates, while banks offer CDs.
Some credit unions may offer third-party CDs in the secondary market, but they arent the primary issuers.
The banking industry has become so competitive that this may no longer be the case now.
Technically, a share certificate pays dividends, while a CD pays interest.
Maturity Terms and Flexibility
Generally speaking, CDs offer a greater range of maturity terms and flexibility.
T-bills are backed by the full faith of the U.S. government.
With these, you are buying guaranteed debt that the U.S. government has issued.
CD vs. Share Certificate FAQ
Melanie Grafilcontributed to the reporting for this article.
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