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What is a Share Draft Account?

Last updated 01/18/2023 by

Erin Gobler

Edited by

Fact checked by

Summary:
A share draft account is a checking account offered by a credit union. The name reflects the fact that account holders are partial owners of the credit union, meaning they get certain perks.
If you’ve ever tried to open an account at a credit union, you’ve probably seen or heard the phrase share draft account. And if you’re new to credit union lingo, you may have been a bit confused about its meaning.
A share draft account is simply a checking account that you can deposit money into, withdraw cash from, and use to spend the money within the account. These accounts have different names at credit unions than they do at banks because of the relationship between the account holder and the financial institution.

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What is a share draft account?

A share draft account is a type of checking account you would open at a credit union. These accounts operate like traditional bank checking accounts in just about every way.
The primary difference between a share draft account and a traditional account is that it’s opened at a not-for-profit credit union instead of a for-profit bank. As a result, rather than being a customer of the financial institution, a share draft account holder is a member and partial owner of the credit union.

How does a share draft account work?

A share draft account works almost entirely the same as a traditional bank checking account. You can open either an individual or joint account and deposit money into it.
The key characteristic of checking and share draft accounts is the ease with which you can access your money. These accounts are designed for spending. You’ll generally have both a checkbook and a debit card that allow you to spend the money in your account. You can also easily access the money at an ATM or bank branch.
An important difference between share draft accounts and share savings accounts is there’s no limit on the number of withdrawals you can make from your share draft or checking account in a month. On the other hand, savings accounts — whether at a bank or credit union — are limited to a certain number of withdrawals.
Other characteristics of share draft accounts depend on your financial institution. For example, some credit union share draft accounts come with mobile apps, online bill pay, automatic transfers, overdraft protection, and local branch access.

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Share draft accounts vs. checking accounts

As we mentioned, a share draft account is almost exactly the same as a checking account. The key difference between the two is where they’re opened. A share draft account is opened at a not-for-profit credit union, while a traditional checking account is opened at a for-profit bank.
However, there are some other differences between the two types of accounts, most of which make share draft accounts more desirable.

Fees

First, share draft accounts tend to have either no or very low monthly fees. That’s often not true of banks, many of which charge monthly fees on checking accounts. Banks may require that you have a minimum balance amount or direct deposit set up to waive these fees.
However, that doesn’t mean you can’t open a checking account with limited fees. Using our comparison tools, you can compare both savings and checking accounts and find the right account for you. For instance, none of the checking accounts below charge a monthly fee.

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Profit status

These more favorable fees are a result of the relationship between the account holder and the institution. Credit union account holders are members and partial owners. These not-for-profit organizations pass their profits along to their members.
Banks, on the other hand, are for-profit companies and account holders are the customers. As a result, banks are incentivized to retain profits to pass along to shareholders rather than passing along those profits to customers in the form of savings.

Membership requirements

Another difference between the two types of accounts is the membership requirements. At a traditional bank, just about anyone can walk in or go online and open an account. However, credit unions often have member requirements.
For example, a credit union may only be available to residents of a certain community, employees of a certain company, or members of a certain organization.

Pro Tip

While credit unions often have member requirements, it won’t be difficult to find one you can join. There are an increasing number of state-wide or nationwide credit unions that nearly anyone can join.

Protection

A final difference between a share draft account and a checking account is how they’re protected. Traditional bank accounts are protected by the Federal Deposit Insurance Corporation (FDIC), which insures up to $250,000 per account holder per account category on bank deposits.
Meanwhile, credit union deposits are protected by the National Credit Union Administration (NCUA), which provides the same amount of deposit insurance as the FDIC.

Pros and cons of a share draft account

Share draft accounts have several key advantages and disadvantages. Some of these pros and cons also apply to checking accounts, while others are unique to share draft accounts.
WEIGH THE RISKS AND BENEFITS
Here is a list of the benefits and drawbacks to consider.
Pros
  • Member-owned. Because credit unions are owned by the members, they aren’t incentivized to retail profits for their shareholders. Instead, they’re incentivized to pass those profits along to the members.
  • Low or no monthly fees. Credit unions generally don’t have fees on their share draft accounts. If they do, they’re relatively low.
  • No minimum balance requirements. Unlike most bank checking accounts, share draft accounts usually don’t have ongoing minimum balance requirements.
  • Potential to earn interest or dividends. In some cases, credit unions pay interest or dividends on the money members have in their accounts.
  • Funds are protected by the NCUA. Just like the FDIC insures bank deposits, the NCUA insures credit union deposits up to $250,000 per person per account category.
Cons
  • Membership requirements to join. Credit unions have membership requirements, meaning you may be limited to specific credit unions.
  • Often smaller institutions with fewer products and services. Credit unions — especially small and local ones — often don’t have the robust service offerings that large banks do.

How to open a share draft account

Opening a share draft account is a fairly simple process. The most important first step is making sure you’re eligible. As we mentioned, credit unions generally have specific member requirements. While some credit unions have quite broad requirements, others may be narrower. As a result, you may be limited in the credit unions you’re eligible to join.
Once you’ve identified a list of credit unions you’re eligible to join, compare their characteristics to determine which is right for you. Some factors to consider include:
  • Local branch locations
  • Online access
  • Mobile app features
  • Other products offered
  • Interest or dividend rates on accounts
Once you’ve determined the right credit union, it’s time to open your account. Depending on the credit union you choose, you may be able to open your account either online or in person at a branch. To open your account, you’ll likely need a government-issued ID, your Social Security number, and current contact information.
While it’s not as common for credit unions to have minimum account balance requirements, you may be required to make a minimum initial deposit to open the account. Be sure you know what the required deposit is and ensure you have that amount available.
IMPORTANT! You don’t have to choose between a bank or credit union to open an account with. Many people open an account with each type of financial institution, with the different accounts serving different purposes for their financial goals.

FAQs

What is the difference between a share account and a share draft account?

The difference between a share account and a share draft account is that a share account refers to any member account at a credit union, while a share draft account is a type of checking account. Another type of share account is a share savings account.

What does a draft account mean?

A draft account is simply a type of bank account that allows you to withdraw funds using a checkbook, debit card, or electronic transaction. These accounts include share draft accounts at credit unions, as well as traditional checking accounts offered by banks.

Key Takeaways

  • A share draft account is a type of checking account that’s offered by a credit union instead of a traditional bank.
  • Because credit union members are not-for-profit organizations, share draft account holders are partial owners of the institution and have certain financial benefits.
  • Share draft accounts make it easy for members to deposit money and access it at any time through checks, a debit card, ATM access, and more.
  • Like the money in checking accounts, the money in share draft accounts is insured up to $250,000 per member per account category. But instead of the FDIC, the National Credit Union Administration (NCUA) insures the money.
  • While share draft accounts have many advantages, you must meet certain credit union membership requirements to open one.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Erin Gobler

Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.

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