When you deposit money at a bank or credit union, safety should be at the top of your priority list. One of the primary reasons to use a financial institution is to keep your money safe. Instead of walking around with a month’s worth of cash—risking loss to misplacement, theft, or physical damage—you can hold funds in a financial institution. As a bonus, you might even earn interest.
But what about credit unions, which are similar to banks, but technically not FDIC-insured? In many cases, your funds are quite safe in a credit union, but you need to understand the details.
Federally-insured credit unions are just as safe as FDIC-insured bank accounts. The National Credit Union Insurance Fund (NCUSIF), which is backed by the U.S. Treasury insures your funds. The National Credit Union Administration (NCUA), an agency of the U.S. government, administers NCUSIF coverage.
That said, some credit unions are not federally insured.
FDIC Insurance
You’re probably familiar with FDIC insurance, which protects you from bank failures and provides the security that bank customers depend on. The U.S. Treasury backs FDIC insurance, and consumers may be more familiar with FDIC insurance and banks than with credit unions. But both programs are federally backed.
Government Guarantee
According to the NCUA, “the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government.” In plain English, that means it’s government-guaranteed, just like FDIC insurance. If your federally-insured credit union fails and the entire pool of money in the NCUSIF is exhausted, the U.S. government promises to come up with any funds needed to replace your savings.
The federal government can raise funds in a variety of ways, including collecting taxes from individuals and businesses. If the U.S. government was unable or unwilling to reimburse you for whatever reason, you’d be out of luck whether you had an account at a bank or a credit union (and you’d have bigger problems to worry about).
Note
The NCUA reports that “Not one penny of insured savings has ever been lost by a member of a federally insured credit union.”
FDIC and NCUSIF insurance both provide up to $250,000 of coverage per depositor per institution. If you have less than $250,000 at any insured institution, you’re covered—and you might even be below the limit if you have more than that, depending on what types of accounts you have. For example, if you have an IRA and a checking account at the same credit union, you might receive more than $250,000 of coverage at that institution.
To find out exactly how much coverage your accounts have, use the NCUA’s Share Insurance Estimator. After listing each account registration (such as an IRA, business account, or joint account), you’ll get a detailed report of your coverage, and you can identify any gaps.
Credit unions are safest when they are federally-insured credit unions. Most credit unions fall into that category, but it’s worth verifying what type of credit union you’re working with. If the credit union’s name includes the word “Federal,” it’s easy—they’re explicitly claiming that NCUSIF protects your funds.
If your credit union’s name does not contain the word “Federal,” it might still be a federally-insured institution. The best way to find out is to research credit unions through the NCUA.
Credit unions are safe places for cash and cash-like holdings. NCUA insurance generally covers:
- Checking accounts
- Savings accounts
- Money market accounts (but not money market funds)
- Certificates of deposit (CDs)
- IRAs held in share accounts at the credit union
Private Insurance
Some credit unions are not federally insured. These institutions are often very safe, but they don’t have the backing of the U.S. government. As a result, they are certainly less safe than a government-backed credit union.
With these credit unions, your safety depends on how the credit union operates and any insurance (possibly private insurance) available. If you’re not sure what your credit union offers, ask questions about share insurance and who stands behind it.
Note
Privately-insured credit unions aren’t necessarily bad, but they don’t offer the highest level of safety available. Presumably, they must compensate you for that higher level of risk, and you need to be willing and able to accept that risk.
What’s Not Insured
If you use any other type of investment through your credit union, those holdings are probably not covered by the NCUSIF. Examples of assets that are not insured include, but are not limited to:
- Mutual funds, Stocks, and ETFs
- Annuities and other insurance products
- Items in your safety deposit box
- Other investment vehicles
Credit unions are customer-owned institutions that offer many of the same products and services as banks. They are typically involved in the community, and they may offer an experience that differs from national banks. To learn more about how they work and what to expect, read about the basics of credit unions and see how they compare to banks.
