Are Credit Unions Safe?
When you think of a checking or savings account, safety should be one of the first things that come to mind: the reason you deposit money is to keep it safe. You could walk around with a whole month’s worth of spending money, but it’s too easy to misplace the cash or get robbed. Plus, it’s nice to earn a bit of interest on money in a savings account.
Credit unions are similar to banks, but there’s still a lot of confusion about how credit unions work. If you’re concerned about protecting your money, you’ll naturally wonder if credit unions are safe like banks are.
The short answer is usually yes, they’re very similar.
Are Credit Unions Safe?
As far as the safety of your deposits, credit unions are just as safe as bank accounts – as long as they are federally insured credit unions.
You’re probably familiar with FDIC insurance, which protects you from bank failures, and which provides the safety that bank customers depend on. Federally insured credit unions offer pretty much the same thing, except it’s called NCUSIF insurance, which is administered by the National Credit Union Administration (NCUA) instead of the FDIC.
The National Credit Union Insurance Fund (NCUSIF) is “backed by the full faith and credit of the US government.” In plain English, that means it’s government guaranteed, just like FDIC insurance. If your federally insured credit union was to fail and wipe out the entire pool of money in the NCUSIF, the US government promises to come up with any funds needed to replace your savings.
If the US 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).
The NCUA reports that “Not one penny of insured savings has ever been lost by a member of a federally insured credit union.”
How Much Is Insured?
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 institution, you’re covered – and you might even be covered if you have more than that, depending on how your accounts are organized (if you have an IRA and a checking account at the same credit union, for example). To find out specifically where you stand, use the NCUA’s Share Insurance Estimator.
What Does Federally Insured Mean?
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 dealing with. If the credit union’s name includes the word “Federal” it’s easy – your money is protected by the NCUSIF.
If your credit union’s name does not contain the word “Federal,” it can still be a federally insured credit union. The best way to find out is to research credit unions through the NCUA.
Some credit unions are not federally insured. These institutions are often very safe as well, but they don’t have the backing of the US government. Your safety depends on how the credit union operates and any insurance (possibly private insurance) available. If you’re not sure how safe your credit union is, start asking questions about share insurance and who stands behind it. Privately insured credit unions aren’t necessarily bad, they just don’t offer the absolute highest level of safety available.
What Is Insured?
Credit unions are safe places for cash (and cash-like) investments. If you use any other type of investment through your credit union (mutual funds, annuities, and other investments), those instruments are not covered by the NCUSIF. NCUA insurance generally covers:
- Checking accounts
- Savings accounts
- Money market accounts (but not money market funds)
- Certificates of deposit (CDs)
- IRAs held at the credit union