Credit union saving & investing: Your complete guide
Ever wonder how credit union savings accounts differ from savings accounts at banks?
While credit unions and banks share many similarities, there are some key differences. Including the words we use to describe how we do business.
For example, at a bank you are a customer who does business via the individual accounts you choose, like a checking account or a credit card.
This is true of credit unions as well. The difference is that as a credit union member you are a co-owner with a share in a not-for-profit financial co-op.
This difference isn’t just found in the terms we use to describe our savings and investment accounts but in how they function.
In this guide, we’ll break down the different types of savings and investment accounts credit unions might offer and what these differences mean to you as a member.
Let’s get started!
Credit union savings options: What they are, how they work, and who they are for
Like banks, credit unions offer several different options for storing money for short-term use, longer-term plans, or to grow money for retirement.
These savings accounts have different minimum balance requirements ranging from $0 to $10,000 or more. They also have different interest rates, terms, and levels of liquidity (i.e. how quickly and easily you can withdraw your money without penalty).
What they share is that all credit union savings and investing accounts are safe places to store money risk-free. Why? Because credit union deposit accounts are federally insured up to $250,000 by the National Credit Union Administration (NCUA).
Credit Unions v. Banks
If you’ve read this blog before, you know that credit unions are member-owned financial cooperatives. When you invest in a credit union, you're essentially becoming a member-owner.
Like banks, when you deposit your money, it's used for various purposes, including lending and investment activities.
The difference is that any profits the credit union earns from these activities are returned to members in the form of higher interest rates on savings, lower interest rates on loans, and lower or no fees on our products.
Credit unions often pay dividends on savings accounts, similar to interest payments at traditional banks. The dividends are a share of the credit union's profits and are distributed to members based on the amount of money they have on deposit. These dividends are typically higher than interest rates offered by banks, but rates are not guaranteed and can fluctuate based on the credit union's financial performance and other factors.
Credit unions offer various saving and investment accounts. Here are some examples of different types of accounts offered by credit unions like CAFCU:
Regular Share Accounts
This interest-bearing savings account establishes your membership with your credit union. When you join a credit union like CAFCU, you deposit a certain amount of money that becomes your “share” of ownership. This share grants you certain members-only rights and privileges, like voting in the credit union’s annual meetings and board elections.
You can think of your regular share account as your "membership account." As your share of membership, the money in your regular share account needs to remain in place for the duration of your membership.
By holding a share in a credit union, you qualify to apply for a variety of financial products and services offered by the credit union, including other savings accounts, checking accounts, low-rate loans and credit cards, and more.
Who is a regular share account for?
Adults who want to be financially empowered as a member-owner of a not-for-profit financial co-op and qualify to join based on the credit union’s field of membership.
Specialty Share Accounts
For many people, getting on the right foot financially means setting aside money for different purposes. A credit union specialty share account allows you to do this. For example, with CAFCU’s “Name Your Own” account, you can designate a special savings account like “Emergency Savings” or “Summer Vacation Cruise” to save for any occasion, goal, or milestone. With the Holiday Club account, you can get a head start on saving for the holidays, all while earning interest.
Who is a specialty share account for? Adults who want to be intentional about saving and accomplish specific money goals.
Money Market Accounts
Like banks, credit unions also offer money market accounts, or MMAs, a type of interest-bearing investment account. The name comes from the investment world, where the "money market" is a segment of the financial market in which short-term borrowing and lending occur.
With these accounts, you usually have to reach a certain minimum balance to unlock a higher level of interest. However, above those minimum balances your money is liquid, meaning it can be withdrawn at any time. This makes MMAs popular with people who may need to access their money but want to keep it parked at a higher rate than a regular savings account. The only caveat is that there may be limits on the number of withdrawals and transfers each monthly.
Who is a money market account for? Adults who want to save a larger amount of money at a better rate but also intend to access that money in the future.
Share Certificates
A share certificate is the credit union equivalent of a bank CD (certificate of deposit). These are “time deposits” that are locked for a period of time, meaning that if you close them before the time is up, you can incur a penalty. While your money is essentially locked for a term, you’ll earn higher dividends at regular intervals. Certificate terms range from as little as 6 months to 12, 24, 36 months, sometimes even longer. They can also come with special terms like 5, 7, or 11 months.
When the share certificate term matures, it can be closed and transferred to a checking or savings account or rolled over into a new share certificate term with the same length.
Who is a share certificate for? Adults and youths who want to earn a higher rate with the backing of NCUA insurance and don’t mind letting it sit untouched for a specific length of time.
Individual Retirement Accounts (IRAs)
According to the Individual Retirement Account Resource Center, the IRA was created in 1974 via the Employee Retirement Income Security Act, or ERISA, in Congress. The goal was to give people not covered by employer retirement plans a way to save money with certain tax advantages.
IRAs can also complement an employer plan like a 401K or 403B by allowing a person to roll those assets into a new tax-advantaged retirement account with a job change or retirement.
While a bank-issued IRA can hold any type of investment (stocks, bonds, mutual funds, exchange-traded funds, real estate investment trusts, etc.), at a credit union, this would often be a share certificate, offering more stability and predictability.
Like other institutions, credit unions offer both traditional and Roth share certificate IRAs. What’s the difference between the two? Mostly it boils down to tax treatment: Depending on the type of IRA, contributions to a share certificate IRA may be tax-deductible (traditional) or made with after-tax dollars (Roth).
Interest earned within the share certificate IRA is typically tax-deferred until withdrawals are made. There are other rules and regulations about these special types of investment vehicles. Go to our IRA landing page to learn more.
Who are credit union IRAs for? Adults who want to save money risk-free in a tax-advantaged account they can use after age 59 ½.
Youth Accounts
All of the accounts above often require a credit union member to be 18+ to participate. However, most credit unions have special youth savings accounts for children from birth through 17. These accounts often have no minimum balance requirement, making it easy for your child to start saving with any amount of money. The only caveat is that the child’s parent must also be a member of the credit union and the child must have the required regular share account in addition to a youth share certificate, checking account, or savings account.
Who are youth accounts for? Children of credit union members who want to start learning how to save money.
Other options
Many credit unions like CAFCU offer additional saving and investment options, such as Educational Savings Accounts (ESAs) and health savings accounts (HSA) that allow members to invest money risk-free in a federally insured account with certain tax advantages. These options, like the others, allow you different ways to grow your money in a secure and predictable way while enjoying the same tax advantages offered by banks and other investment accounts.
How do I choose a savings account?
Before you choose an account, make sure to do your homework. We recommend doing the following before opening an account:
- Understand whether there is a minimum balance requirement (and what happens when you dip below that balance).
- Watch out for hidden fees.
- Know whether your funds are available for withdrawal and what limits there might be on the number of monthly withdrawals allowed.
- Shop rates for the best options.
- Verify whether the credit union is federally insured by NCUA (CAFCU is!).
More resources
Learn more about CAFCU’s saving and investing accounts.
View CAFCU’s current savings rates.
Take advantage of our current offers.