Credit unions are nonprofit depository institutions that function much like traditional commercial banks, but which are mutually owned by the depositors. The depositors are often employees of a particular company or work in the same occupation. The mutual ownership of credit unions is why checkable deposits are termed "share" drafts.

Some Recent Numbers

A New Kid on the Block

In fact, these accounts were termed "share drafts" in large part to circumvent banking regulations that existed when they were first issued. The "share" part of share drafts indicate that this is an account at a mutually owned credit union. The "draft" part of share drafts is really nothing more than a common euphemism for "check." In the banking world, "check" and "draft" are basically synonymous. Credit unions did NOT issue "checking accounts," they issued "share drafts."

With high rates of inflation and high interest rates, banking customers looked for ways to retain liquidity (as in spendable money) while also generating interest payments. Share draft accounts were offered to meet this need and to attract deposits to credit unions banks. While such accounts skirted existing banking regulations they became legal in the 1980s.

A Couple of Others

• NOW Accounts: Savings and loan associations and mutual savings banks issued what they termed NOW accounts--negotiable order of withdrawal. A "negotiable order of withdrawal" is essentially another term for "check." While these were basically checking accounts, an interest was paid on the balance of funds.


• ATS Accounts: To remain competitive with the interest-paying "checking accounts" offered by their depository competition, traditional commercial banks began offering automatic transfer services (ATS) accounts. This involved the automatic transfer of funds from a savings account to a checking account to process checks. This service allowed banks to pay interest on the balance of the savings account, even though the savings account effectively functioned as a checking account.