What is a share savings account?

An equity savings account isn’t much different from a regular savings account, but there is one big difference: You’ll find equity savings accounts at credit unions, not banks.

In practice, equity savings accounts and regular savings accounts work in the same way. Both are insured deposit accounts that pay a return on your balance. But there are a few differences between the two that are worth understanding.

Read on to discover what equity savings accounts are, how they work, and how they compare to traditional savings accounts.

A stock savings account is a savings account that you open with a credit union.

Equity savings accounts take their name from the organizational structure of a credit union. Credit unions are not-for-profit financial cooperatives, and you must become a member to bank there. When you join a credit union, you will also need to open a share account.

Stock savings accounts require an initial deposit, often around $5. This minimum deposit represents your “share” of ownership in a credit union. This differs from a regular savings account, which may require a minimum deposit but does not grant partial ownership in return.

Credit unions may have savings accounts, checking accounts and stock certificates. When you join a credit union, you generally must open the account that the credit union designates as a share account.

When you join a credit union, you make an initial deposit into your equity savings account that represents your ownership of the institution. Just like with a regular savings account, you earn a return on your balance. At a credit union, these returns are known as dividends, which come from the credit union’s profits. Because credit unions return profits to their members, they can often afford to offer higher dividends than the interest rates offered by traditional banks.

Most stock savings accounts do not come with a debit card or ATM. But you can probably open a checking account at the same credit union and link it to your stock savings account, making it easy to transfer money between the two.

Just like a bank savings account, share savings accounts may incur monthly maintenance costs. If so, there are often ways to avoid the fees, such as maintaining a specific minimum balance.

Most credit unions offer online and mobile banking so you can access and manage your account from anywhere. Credit unions are also unique in that they often participate in cooperative shared branch networks. This means that if you are traveling, you may be able to go to another credit union’s branch and access your stock savings account at no additional cost.

At first glance, equity savings accounts and bank savings accounts work in a similar way and serve the same purpose. But these two account types have a few different features that set them apart:

• Financial institution structure: Stock savings accounts can be found at credit unions, while bank savings accounts can be found at banks. When you open a stock savings account, you become a shareholder in that credit union. For most bank customers, such ownership does not exist (with the exception of mutual banks).

• Costs: Credit unions are non-profit organizations and banks operate for profit. This generally allows credit unions to charge fewer and lower fees than banks.

• Income: The income on a bank savings account is called interest. At a credit union, your stock savings account earns dividends. Dividends are part of the organization’s profits.

• Insurance: Because share savings accounts and bank savings accounts are held at different types of institutions, they are insured with different entities. Stock savings accounts are insured by the National Credit Union Administration (NCUA), while bank savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC).

First deposit: Stock accounts require an initial deposit or share, usually $5. This share is necessary for membership and gives the account holder partial ownership of the credit union. However, the minimum deposits for bank savings accounts vary widely. Some accounts require $100 or more initially, but there are plenty of banks that don’t have a minimum deposit requirement.

Read more: Credit union versus bank: which suits you?

Shared savings accounts offer a wide range of advantages, but can also have some disadvantages. Weigh the following pros and cons before opening one:

• Low initial deposits: The opening share deposits are usually quite low, often $5. This makes them widely accessible to a large number of savers.

• Credit union ownership: Opening a stock savings account with a credit union means you become a shareholder or owner of the institution. This brings a number of benefits, including a say in how the credit union operates.

• Dividends: Share savings accounts pay you dividends on your balance. These dividends are often more than you would earn with a traditional bank savings account.

• Low cost: Because credit unions are not focused on making a profit, they can often treat their members to low or no fees.

• Some banks do not have a minimum deposit: Although an opening deposit for stocks is an inherent part of a stock savings account, some banks offer savings accounts with a minimum opening deposit of $0.

• Possibly better returns with online banks: Online banks, which don’t have to pay the overhead costs of maintaining physical branches, can potentially offer an even higher return on your savings.

• Must meet the eligibility requirements to join a credit union: In most cases, anyone can open a bank account. But to open a stock account with a credit union, you must meet the organization’s eligibility requirements, which can be restrictive.

Opening a share savings account is comparable to opening a bank savings account. But there are some additional considerations when opening an account with a credit union.

1. Find a credit union. If you are not already a member of a credit union, you will need to choose an institution where you will open your account. When comparing credit unions, make sure you meet the eligibility requirements. You may want to start your search in your area, where you are more likely to qualify for membership. You can also search online for credit unions that anyone can join. After confirming your eligibility, compare your options based on rates, costs, accessibility, account features, and customer service.

2. Apply for a savings account. Many credit unions allow you to apply for a new account and membership online, or you can do this at a branch. To apply, you will need some basic documentation such as your ID and social security number.

3. Make your first deposit. Unless you have an existing equity account with that credit union, you will need to fund the equity account when you open it. Many credit unions require a $5 deposit, which you can often finance with cash, a check, or a transfer from another account.

A share savings account works much the same as a traditional savings account from a bank. The main difference is that when you open a stock savings account, you become a member owner of the credit union. Your initial deposit (usually $5) represents your “share” in the credit union.

Yes, in most cases you can withdraw money from a stock savings account without penalties or restrictions. However, some credit unions may place a limit on the number of withdrawals you can make per month (usually a maximum of six). There may also be a minimum balance you must maintain to earn interest and/or avoid fees. If so, it’s important to avoid withdrawing too much money and going below the minimum.

What is the difference between a savings account and a share account?

Banks offer a savings account, into which customers deposit money and receive interest, but have no ownership interest in the bank. Conversely, an equity account is offered by credit unions, and when you open one, you become a member-owner of the credit union. Stock accounts also provide dividends instead of traditional interest.