Share Certificate or CD?

Recently I’ve received a couple questions regarding whether or not federal credit unions can use the terms “certificate of deposit” or “CD” when it comes to describing share certificates. So, what does NCUA require when it comes to the correct terminology?

In order to set the stage, I first want to note that section 707.2(a) of NCUA’s Truth in Savings rule defines “account”, in part, as “a share or deposit account at a credit union held by or offered to a member or potential member. It includes, but is not limited to, accounts such as share, share draft, checking and term share accounts.” Now, the commentary to that section is where the regulation breaks down what terminology can and cannot be used.  I’ve included the relevant portion below:

“5. Use of synonyms. Generally, it is not the purpose of part 707 to prohibit specific descriptive terms for accounts. For example, credit unions can use adjectives and trade names to describe accounts such as “Best Share Draft Account,” or “Ultra Money Market Share Account.” Synonyms for share, share draft, money market share, and term share accounts may be used to describe various types of credit union share and deposit accounts as long as the synonym is accurate and not misleading and, for account disclosures, is used in conjunction with the correct legal term. For example, the following synonyms may be used:

  1. The term “checking account” may be used to describe share draft accounts.
  2. The term “money market account” may be used to describe money market share accounts.

iii. The term “savings account” may be used to describe regular share and share accounts.

  1. The terms “share certificate,” “certificate account,” or “certificate” may be used to describe share certificates and other dividend-bearing term share accounts.
  2. However, under no circumstances may a credit union describe a share account as a deposit account, or vice versa. For example, the term “certificate of deposit” or “CD” may not be used to describe share certificates and other dividend-bearing term share accounts. Similarly, the terms “time account” (used in Regulation DD, 12 CFR 1030.2(u)) and “time deposit” (used in Federal Reserve Board’s Regulation D, 12 CFR 204.2(c)) may not be used to describe term share accounts.” (Emphasis added).

As you can see from the above commentary, federal credit unions may not describe a share certificate as a “certificate of deposit” or a “CD”. So, is “share certificate” the only option? The commentary says that along with “share certificate”, acceptable terminology also includes “certificate account” or “certificate”, which “may be used to describe share certificates and other dividend-bearing term share accounts.”

I also want to point out that the commentary to section 707.2(i) provides some insight and mentions, in part, that “[m]ember savings placed in share accounts are equity investments, and the returns earned on these accounts are dividends. Federal credit unions may only offer dividend-bearing and non-dividend-bearing share accounts.” (Emphasis added).

However, the commentary does distinguish that “[s]tate-chartered credit unions may offer both share and deposit accounts if permitted by state law. State law, including without limitation regulations and official interpretations, will determine if returns earned in accounts in state-chartered credit unions are dividends.” As such, state-chartered credit unions may want to consult with their state leagues and/or local counsel for further guidance.

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