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This question is a follow-up to Difference between a (credit union) "share certificate" and a (bank) CD?

What is the difference in taxation on "interest" payments versus "dividend" payments? Is it important? Is one preferable to the other?

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For tax purposes, the IRS treats credit union "dividends" on the same basis as interest payments from banking institutions.

The difference between the two is that credit union deposits reflect an ownership stake in the credit union. As a shareholder, you can participate in meetings and may have a voice in credit union governance. Bank deposits are just a liability on the bank's books. To the average person, there is no real discernible distinction between the two.

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