Understanding the Rule of 78s for Share Dividends
At CLICO Credit Union, we believe in keeping our members informed about how their money grows. One common method used to calculate dividends on shares is called the Rule of 78s: a time-based method that fairly rewards members based on how long their funds have been held during the year.
What Is the Rule of 78s?
The Rule of 78s is a method used to calculate dividends based on how long your shares have been held during the year. It gives more weight to shares that were deposited earlier in the year and slightly less to those added later.
This means the sooner in the year you save, the more dividends you earn.
How Does It Work?
The Rule of 78s gets its name because the sum of the months in a year (1+2+3+…+12) equals 78. Each month is assigned a weight, with January receiving the highest weight (12) and December the lowest (1).
Here’s a simplified example:
So, if you deposited $10,000 in January, it will earn a greater portion of the year’s dividend than $10,000 deposited in December.
Why Use This Method?
The Rule of 78s rewards consistent savers and encourages early deposits. It’s a system that:
- Encourages good savings habits
- Ensures fairness based on the time value of your money
- Helps members grow their returns by planning ahead
In Summary
If you’re planning to grow your savings and benefit from annual share dividends, the earlier in the year you deposit, the better! By understanding the Rule of 78s, you can make smarter decisions about your savings and maximize your returns at CLICO Credit Union.
Want to learn more? Contact us today or speak to a member service representative about your shares and dividends.
