Paper vs. Electronic Stock Certificates

Source: National Endowment for Financial Education | April 13, 2006

With digital technology, many common financial items are being changed from paper to electronic. Bills, checks, and even account statements now come in digital form. Stock certificates are no exception. Should you change your paper certificates to digital? Consider these issues when making your decision:

Security
Paper certificates can be easily lost or stolen. They must be stored in a safe place. This security worry is eliminated with digital certificates. When you register your stocks digitally, you receive a statement of your holdings. Your holdings are tracked electronically. On the other hand, some people feel a sense of security by having physical proof of their stock ownership.

Cost
Handling paper certificates is costly. They must be shipped, examined, and filed for every transaction. This is expensive for issuers and brokers. Digital certificates eliminate these costs. The lower industry costs may result in cost savings for investors.

Time
Processing paper stocks can be time-consuming. Before you can sell the stocks, you must get them from storage and deliver them to a broker. After the sale, paper certificates must be examined and filed. Digital certificates can be transferred without this time-consuming process. The time savings may be particularly attractive if you make frequent stock trades.

Lost Stocks
Lost paper stocks must be replaced. This can be frustrating and annoying. Digital certificates can't be lost. This can cut down on the hassle factor not only for you, but also for your heirs.

Next Steps
These are some of the things to consider if you are thinking about changing your paper stocks to digital. "Digital record keeping is faster, more efficient, and less expensive," states Travis Larson of the Securities Industry Association. However, not all stock-issuing companies have gone digital. While some are considering switching to digital, many companies still issue paper certificates. Ultimately, it's your decision whether to convert to electronic stock ownership. If you do want to convert your paper certificates to electronic ownership, call your broker, bank, or the company. For additional help, a financial advisor can make recommendations to suit your individual situation.

This column is meant to provide general financial information; it is not meant to substitute for, or to supersede, professional or legal advice.

Note: The content areas in this material are believed to be current as of this printing, but, over time, legislative and regulatory changes, as well as new developments, may date this material.

©2005 National Endowment for Financial Education. All rights reserved.