Definition of a Share Draft
If you open a checking account at a not-for-profit credit union rather than a bank, you’ll probably come across the term “share draft account.” Because you are a member of the credit union, you are a partial owner or shareholder of it. The “share” in share draft account reflects that ownership. Shares are federally insured by the National Credit Union Share Insurance Fund, administered by the National Credit Union Administration (NUCA), up to $250,000. You can use a share draft account to write checks, pay your bills, and make everyday purchases.
Alternate names: Share draft account, share draft checking account
How a Share Draft Works
Share drafts vary from credit union to credit union. In most cases, however, they offer many conveniences. You may be able to write as many checks as you’d like for free and receive overdraft protection. Other services can include automatic deposits, online bill payments, 24-hour account access, and monthly statements. While many checking accounts at banks have minimum balance requirements and service charges, share drafts usually do not. Depending on the credit union you choose, you can enjoy the same perks as a checking account without the fees. If you open a share draft account, you may also apply for a debit or ATM card. In most cases, you’ll have unlimited free access to the credit union’s ATMs so you can withdraw cash whenever you need it. Credit unions also offer business share draft accounts that work a lot like personal share draft accounts.
Share Draft Accounts vs. Checking Accounts
Even though share draft accounts and checking accounts have a lot in common, there is a key difference between them. Unlike many checking accounts at banks, share draft accounts at credit unions pay interest—referred to as dividends—on the money deposited into them. Between 1933 and 2011, checking accounts in the U.S. were not permitted to earn interest. However, because this prohibition is no longer in effect, some bank checking accounts now accumulate interest. Also, bank checking accounts usually come with savings accounts that may earn interest as well. Another notable difference between share draft accounts and checking accounts is that share draft accounts tend to be more affordable. With a share draft account, you probably won’t have to worry about a minimum balance or pay to maintain the account.
Pros and Cons of Share Draft Accounts
Pros Explained
No minimum balance requirements: As share draft accounts don’t usually require a minimum balance, you can open one without ever worrying about how much money is in your account.Can earn interest: Even though the interest on share draft accounts probably won’t be significant, it can help you earn a bit of extra cash without much effort.
Cons Explained
Must join a credit union: A share draft account won’t be an option for you unless you join a credit union. The good news is that many credit unions have lenient membership requirements.Will need to make a minimum deposit: In addition to joining a credit union, you’ll have to deposit a nominal amount of money into a share draft account in order to open it.
There are countless share draft accounts available, so it’s a good idea to do your research and shop around to find the best option for your situation and needs.
