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I recently bought a 3 month, $500 "Share Certificate" from a Federal Credit Union that I am a member of. I did this as an experiment mostly.

They list an APY, a dividend rate, and a term length... but that's it. I have no idea how they calculate how much money I get and how often I get. I've done some searching and I haven't really found much information on share certificates.

Also, the dividends can be paid to my share certificate, do I make interest in those too?

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Have you asked customer service for this information? :) –  fennec Aug 26 '10 at 4:35

2 Answers 2

The dividends on CD's typically get put back on the balance of the CD depending on the instition. That money then becomes available to withdraw if you so decide, but if you leave it in the account you will earn more interest. The interest is compounded off the total balance which includs any dividends that have been added in the CD. You essentially only get paid out once typically on a CD which is the time of maturity. After that you have 10 days to either roll this into a new cd and cash it out. The dividends typically get paid out (or put back on the cd) quarterly, but it depends on the institution as well.

Try going to the following website to find out how much you will make. You will need to ask your institution if they pay out monthly or quarterly first. Put in the beginning balance, how often it's paid out, the interest, and months and it will tell you your ending balance.

http://www.bankrate.com/calculators/savings/bank-cd-calculator.aspx

My suggestion: Stay away from CD's at this time. The interest rates are too low to bother with.

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A "share certificate" sounds like a different instrument than a CD, especially since it's a credit union. They may share similar properties, but they're not the same. –  fennec Aug 26 '10 at 4:16
    
Yes, that's right. Also, the share certificate and CD could be the same thing. –  devin Aug 26 '10 at 21:57

APY stands for Annual Percentage Yield, a calculation done by the financial institution to make simple comparisons of account value after 1 year between competing accounts. The APY includes the effects of compound interest regardless of the rate of interest, so the simple answer is: no, your return is only your principle multiplied by the APY after a year.

Credit Unions are more member participatory than a bank, so the name "share" implies that you own a share of the credit union and it's future. It's possible that the CU could elect to pay a dividend on top of your interest rate. Since you have the option to credit the dividend to the share certificate account or another place, it seems that interest would be paid on the dividends left in the SC on the compounding schedule at the contracted rate.

You would have to look at the terms of the account to verify precisely when the dividend is payed, whether it's a value above and beyond the interest, and how it is compounded into our account.

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