Share Certificates

Under FCUA § 1757(6)(B), FCUs are authorized to offer share certificates to their members.

A share certificate is comparable to a CD offered by a bank. It is a term account that earns a dividend at a specified rate (either fixed or variable) and usually requires a minimum balance. The minimum term is typically three months and may extend up to five years or longer.

As an FCU is only authorized to pay dividends, it should not refer to any of its term accounts as certificates of deposit or as CDs. However, a FISCU may use these terms if it is authorized to offer interest bearing term accounts, as outlined in NCUA regulation § 707.2(o), Interest.

FCUA § 1763, Dividends, stipulates a credit union’s board of directors is responsible for setting dividend rates. This activity can be delegated to an executive committee of the board of directors as specified in the FCUA § 1761b(14). A credit union’s board of directors or executive committee will establish dividend rates based on:

  • Prevailing market dividend and interest rates

  • Liquidity needs

  • Business plan

  • Members’ needs

  • Share certificate terms

Most share certificates will include an early withdrawal penalty. Some share certificates have variable rates, step-up rate options, and options to add deposits in the share certificate’s initial terms and conditions.

FCUs typically issue non-negotiable share certificates, meaning the certificates cannot be resold on the secondary market. In addition, credit unions that offer share certificates should institute an effective ALM program to monitor and mitigate the risks share certificates can present, for example, liquidity and IRR.

FISCUs declare dividends or interest on share certificates in accordance with their respective state bylaws.

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