Share Draft

A share draft is a type of draft, which credit unions use, as a way to access funds in individual accounts. Share draft accounts at credit unions are the equivalent of personal checking accounts at banks. Likewise, share drafts are the equivalent of bank checks. Shares represent partial ownership in a credit union, and credit union members (shareholders) write drafts (checks) as a way to access the value of their partial ownership (shares).

Breaking Down Share Draft

A credit union functions differently than a conventional bank. In a credit union, every member is also a partial owner. Because credit unions are cooperatively owned, members do not make deposits, but rather purchase shares. Shares do not earn interest, but instead, earn dividends. (A dividend is a distribution of a portion of an organization's earnings, decided by the board of directors or other managerial entity, paid to a class of its shareholders.)

What's more, share draft accounts usually carry neither monthly fees nor minimum balance requirements, unlike many bank checking accounts. In traditional commercial banking, service charges help generate income from accounts that don't bring in enough interest revenue to cover the bank's expenses. Charging fees when customers fail to maintain a minimum balance (i.e., overdraw an account or write too many checks) ensures that these accounts continue to make financial sense for the institution.

Share Drafts and the Evolution of Credit Unions

Credit unions first originated in 1844 in Rochdale, England, when a group of weavers established the Rochdale Society of Equitable Pioneers. This organization raised the capital to buy goods at discount prices, subsequently passing the savings along to their members. Many consider Friederich W. Raiffeisen to be the founder of the modern credit union. He established the Heddesdorf credit union in Germany in 1846. In 1901 credit unions were introduced in Canada and arrived in the United States in 1908. The St. Mary's Bank Credit Union in Manchester, New Hampshire, was the first credit union in the U.S.

Originally, membership in a credit union was limited to people who shared a "common bond." For example, they had to work in the same industry or for the same company. Members might all live in the same community. Today, however, credit unions have loosened membership restrictions, allowing the general public to join. At times traditional retail banks have felt the pressure of competition from credit unions.

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  1. FRB Federal Credit Union. "History." Accessed Nov. 19, 2020.

  2. St. Mary's Bank. "About Us." Accessed Nov. 19, 2020.