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Fed Meeting Preview and Deposit Rate Forecast - March 15, 2023Credit Union Terminology for CDs & Deposit Insurance
More savers may be leaving their banks this year as their CDs mature and they see how low the new CD rates are. As many readers of this blog know, the best rates are often at credit unions. This may cause more people to look into credit unions, and they may be confused by some of the terminology. One reader left a comment asking what the difference was between CDs and PenFed's money market certificates. Also, he was concerned if these would have the same insurance coverage as bank CDs.
I don't know why PenFed calls their CDs "money market certificates". In summary, they are essentially the same as bank CDs, so I usually call them CDs for short. The "certificate" part makes sense. It's common for credit unions to leave off "deposits" for the names of their accounts. The reason is that deposits are called shares at credit unions since they represent an ownership in the credit union. Consequently, a savings account is often called a share account and a certificate of deposit is often called a share certificate.
Several credit unions leave off the word share in their account names. For example, Alliant Credit Union uses the name "regular savings" for its main savings account. For CDs it uses the name "certificates".
One reason PenFed may include "money market" before certificate is to differentiate it with the IRA certificate. I can understand why this creates confusion since "money market" is usually in the name of savings accounts that provide limited check writing. Money market accounts have variable rates and no fixed term. However, PenFed's money market certificates are CDs with fixed rates and fixed maturities.
On the issue of deposit insurance (or share insurance for credit unions), the National Credit Union Association (NCUA) provides share insurance coverage for the vast majority of credit unions in the nation. This coverage is essentially identical to what the FDIC provides to banks. Here's how the NCUA defines what is covered (under "How Do I Know If My Credit Union Is Federally Insured?"):
NCUA share insurance covers all types of deposits received at a federally-insured credit union, including deposits in a share draft account, share savings account, or time deposit such as a share certificate. NCUA insurance covers depositors' accounts at each federally-insured credit union, dollar-for-dollar, including principal and any accrued interest through the date of the insured credit union’s closing, up to the insurance limit.
It should be noted that not all credit unions are federally insured by the NCUA. A few credit unions in some states only have private deposit insurance via the company American Share Insurance (ASI). Only state-chartered credit unions can drop federal insurance. All federal credit unions (with federal in their names) must be federally insured by the NCUA. I have more details on ASI in this blog post.
One problem with name "money market" is that it's not only used in "money market accounts" but also in "money market funds". A money market fund is short for money market mutual fund. This is not a deposit account at either a bank or a credit union. It's usually offered at brokerages. They are managed conservatively with investments in short-term, fixed income securities. However, there is typically no FDIC or NCUA insurance coverage for money market funds.
If you're looking for CDs with higher rates than what your banks are offering, don't be afraid of credit unions. Their share certificates are the same as bank CDs. Also, the certificates at federally-insured credit unions have essentially the same deposit insurance coverage as bank CDs.
Here are some references if you want to learn more about credit unions:
- An Overview of Credit Unions
- The Differences between Credit Unions and Banks
- Basic Credit Union Features
- Overview of Credit Union ASI Insurance
- Resources to Help You Support Your Local Credit Unions
For more information on PenFed and its CDs (money market certificates), please refer to my latest PenFed CD review.
Edit 1/13/2012: Added more details about which credit unions may not have federal insurance.
I decided for the amount of money I had invested in the CD, I deserved "something" from them with the info on it showing the Joint names I requested and other important info found on a normal CD. All I got from them was statement copies from the internet which did not show my spouse as joint. I kept calling and got excuse after excuse for why they did not get the "Certificate" or anything similar to it to me. Today I spoke to a Supervisor and after waiting quite long on the phone, she returned to give me the reason they never got the Certificate to me. She said their "machine broke" but now it was fixed and they mailed it out yesterday and I should get it in the mail before long. What machine?? Any CD I have ever gotten is printed off of a computer??? So now I await the next thrill of entrusting my money to a "credit union"! These people act like they are running a snowball stand and do not take it very seriously that they are using OUR money and we have a right to have the proof we need!
I assure you I will find whatever BANK I can find even if I have to take a lower rate so that I can actually go inside and be with them while they draw up my "certificate" and be able to read it in front of them. I hope other credit unions are run more professionally than the one I unfortunately am doing business with and treats their customers more professionally and honestly. THEIR MACHINE BROKE?? That takes the cake! Now I am waiting again to see if they will send me the paper with the CD info on it that they themselves state we have a right to expect from them. If not, I will find the CEO of that place and send him my packet of anquish from this certain CREDIT UNION! I know Ken means well by trying to steer us to credit unions in these bad times but people be very careful of which one you select. I did business with a credit union from a company my spouse used to work for and they were very professional and never acted as unprofessional as this one so I know I must have just gotten a "rotten apple" this time. It frightens me that I have trusted a chunk of my savings to these uncaring, unprofessional people for a FIVE year "whatever" hopefully CD!
I purchased the CD at a local "Share Partner"
Not familiar with that term.
#6: I was referring to what I think is called a "Share Branch" not Partner. I like the credit unions who have Shared Branches in my city because I can turn the check over to them and it is put into the savings account with the CU I am using and I don't lose the quoted CD rate incase my check gets to the CU after a rate is lowered. I can also withdraw any dividend/interest checks monthly or quarterly from the Shared Branch in my same city. This part about the CU I really like and have had no problem with. This just seems to be a "learning" experience with me dealing with a CU after so many years of just using banks. Once things are worked out, I'm sure it will all be ok.
http://www.cbo.gov/doc.cfm?index=5074&type=1
"The move toward market-determined-rate deposits at the thrift insti-
tutions began in 1978 with the authorization of the six-month Money Market
certificate, with a rate ceiling tied to six-month Treasury bill rates and a
minimum denomination of $10,000."
http://www.law.cornell.edu/ucc/3/3-104.html
§ 3-104. NEGOTIABLE INSTRUMENT.
(j) "Certificate of deposit" means an instrument containing an acknowledgment
by a bank that a sum of money has been received by the bank and a promise
by the bank to repay the sum of money. A certificate of deposit is a note of the bank.