If you opened a checking account at a credit union rather than a bank, you will likely see the term “share draft” applied to your new account. This also applies to savings accounts opened at credit unions. You are a member of the credit union, in effect a partial owner, or shareholder. When you open a checking account at a bank, you are simply a customer. The “share” in the term share draft represents that ownership, while the “draft” refers to the checks. A check is a draft, but the term is old-fashioned and not generally part of contemporary financial terminology.
How Credit Unions Work
Unlike banks, credit unions are not-for-profit organizations. These cooperative institutions, owned by members, provide the same financial services as banks. Because they are nonprofit, credit union earnings are returned to members in the form of lower account fees or lower borrowing rates, as well as higher savings rates for savings accounts, money market accounts and certificates of deposit. The latter are known as “share deposits” at credit unions. You can put money into an IRA via a credit union, but expect to see the term “shares” for retirement accounts as well.
Because credit union members are shareholders and work in a cooperative manner, when they put money into the credit union, they are buying shares, not making deposits. The same holds true when it comes to interest, which is referred to as a dividend in a credit union account. Because each member is a shareholder, that also means each person has a say in the credit union’s governance, with voting for Board of Directors positions and on issues pertaining to credit union matters. Each member has one vote, so those with more money in the credit union do not have more say when voting than those with less money.
Credit Union Insurance
Is your money safe in a credit union? It’s just as safe as money in the bank. Funds held in credit unions are not covered by the Federal Deposit Insurance Corporation, as is the case with banks. However, these funds are covered under the National Credit Union Administration. The NCUA, an independent federal agency established in 1970, administers the National Credit Union Share Insurance Fund. As with FDIC insured funds, deposits in credit unions are insured for up to $250,000 per individual member. Federally-insured credit unions must display an official NCUA sign at every teller window and on their websites.
Share Draft Amenities
You’ll receive many of the same amenities in a share draft account as you would in a checking account opened in a bank. In fact, share draft accounts are often far better for the consumer than checking accounts from banks. For example, many share draft accounts do not require a minimum balance and do not charge per-check fees. Share draft owners may receive free debit cards, free electronic statements and free internet access to accounts. As with banks, credit unions offer ATM access, overdraft protection, direct deposit and automatic bill pay.
Joining a Credit Union
In the past, becoming a credit union shareholder was more difficult than it is today. Members usually required some sort of common bond to join a credit union, whether it was a type of employment, organizational membership or geographic location. Over the years, credit unions have loosened eligibility standards, so that almost everyone can find a credit union they may join. If a family member has an account at a credit union, it is likely the credit union will allow you to join. Credit unions may charge a nominal fee when you join, usually an amount equal to the cost of one share at par value.
- Consumer Financial Protection Bureau: What is a credit union share draft account? Is it a checking account?
- Treasury Department Federal Credit Union: Deposit Products
- First Credit Union: How a Credit Union works
- Investopedia: National Credit Union Administration (NCUA)
- Excess Share Insurance: NCUA & ESI
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