What is a share draft account?
If you’ve looked into accounts offered by a credit union, you may have encountered an account called a share draft. Despite different terminology, a share draft account is essentially the same thing as a checking account, except that it’s offered by credit unions instead of banks.
Like a typical checking account, share draft accounts allow the account holder to write unlimited checks, make purchases with a debit card and withdraw cash at an ATM. There are, however, a few key differences between a bank’s checking account and a credit union’s share draft account.
What does share draft mean?
To understand what “share draft” means, it’s important to first understand how credit unions work and how they differ from banks.
Banks are for-profit, business-driven institutions; credit unions are not. While banks may have private investors that collect profits, profits generated by credit unions are distributed among the credit union’s members (those who hold an account with the credit union).
Members of a credit union are also shareholders. Hence, accounts at credit unions are called “shares,” representing the members’ partial ownership in the credit union. Meanwhile, “draft” is just another term for a check. A share draft account, then, is an account that you can write checks against, which also admits partial ownership in the credit union.
Share draft accounts vs. checking accounts
Share draft accounts and checking accounts are both transactional accounts designed for everyday spending and finances. But there are some important distinctions between them, as a result of being at two different types of institutions.
Share draft accounts earn interest — often called dividends, at credit unions — while most bank checking accounts do not. The not-for-profit nature of credit unions means that all profits are distributed to members in the form of dividends. There may be a minimum balance requirement for the account owner to earn these dividends, though.
Another difference between the two accounts is that there tend to be lower or no monthly fees for share draft accounts. While this is similarly the case for many online banks, most traditional banks charge a monthly maintenance fee on their checking accounts.
Membership requirements for credit unions also make share draft accounts unique. Anyone can open a checking account at a bank, but credit unions generally serve a specific community, region or organization, so you must meet the eligibility requirements to open an account with the credit union.
Both share draft accounts and checking accounts may come with federal insurance of up to $250,000 per depositor. The only difference is what agency provides the insurance. Credit unions are insured by the National Credit Union Administration (NCUA), and banks are insured by the Federal Deposit Insurance Corp. (FDIC).
| Share draft accounts | Checking accounts |
|---|---|
| Earn dividends | Typically don’t earn interest |
| Have low or no monthly fees | Monthly maintenance fees can be up to $15 or more per month |
| Have specified membership requirements | Anyone can open an account |
| Are insured by the NCUA | Are insured by the FDIC |
How to open a share draft account
If you’re considering opening a share draft account at a credit union, first make sure you’re eligible to be a member of the credit union. This may mean living in a specified region, working in a certain type of job sector or being involved in a church, for example.
You’ll also want to look out for any opening deposit minimums or minimum balance requirements to earn dividends.
To open a share draft account, you’ll need to prepare some or all of the following information:
- A government-issued photo ID
- Your Social Security number
- Proof of address (such as a bill with your name on it)
- Any credit union-specific documents required (such as military identification for a credit union that serves military personnel)
You can fill out an application at the credit union’s local branch, or, in some cases, you may be able to apply online.
Bottom line
Share draft accounts operate much like checking accounts, but they’re at credit unions rather than banks. Since credit unions distribute their profits to members in the form of dividends, you may be able to earn a higher yield on a share draft account than you would for a typical checking account.
Credit unions usually have eligibility requirements, though. If you’re looking for an account that anyone can apply to, there is a wide variety of checking account options available.
