Money Jargon, Dividend.

Today's money jargon I seek to declassify is "dividend". Even though this term gets tossed around a lot, it is a very important word that keeps credit unions separate from other financial institutions. So for this important discussion, I put this jargon underneath the lamp and ask the hard questions.

What exactly is a dividend?

A dividend by definition is simply a share of something that's getting divided.

But where do dividends come from? And what's being divided?

In a credit union, dividends are surplus earnings, or earnings after expenses and reserves. In other words, what corporations would call profit. This is what's being divided and therefore being called "dividends".

So who gets in on this money that's being divided?

At a bank or large corporation, dividends are decided by a paid board of directors and distributed to a special class of its shareholders. But in a credit union, its members are shareholders, there is no special class, and our board of directors are volunteer. So this mean it's members receive a share of the dividend.

Ok, so where's my money?

It's in the services. Dividends are often paid out to it's members (owners/shareholders) by offering a higher percentage on their savings accounts or lower rates on specific loans. Ever wonder why credit unions always have the best savings rates and loan rates? This is it! They pay dividends to their members!

Why not just write me a check rather than just another percent on my savings?

Depending on the amount of the surplus earnings, dividends, which are usually paid quarterly, would only pay out as a few dollars to each member. But as a higher savings rate, members have the opportunity to earn lots more. If you inherited $500,000 and put it all in a savings account earning just 1% APY, that's $5,000 a year, simply given to you, for nothing. That beats the heck out of a $15.00 check. Now seek out your inheritance! By the way, the last savings account I had at a bank was "earning" .03%. Listerhill is offering 5% right now, so take advantage of it.

I hope this journey has helped you as much as it has me. Stay close as I continued to take a closer look at these money jargons.

Chris