Credit unions differ from banks in that they aren’t insured by the FDIC; instead, their protection falls to another entity: The National Credit Union Administration (NCUA).
NCUA insurance covers accounts of up to $250,000 per account owner across checking, savings and money market accounts; traditional and Roth IRAs as well as Keogh retirement accounts are also covered by NCUA coverage.
Checking Accounts
Just like banks, most credit unions provide account owners with up to $250,000 of insurance protection against account failure through the National Credit Union Share Insurance Fund (NCUSIF), similar to what the FDIC does for bank accounts.
Most insured credit unions also provide additional deposit insurance through private insurers that exceeds $250,000 of coverage per account and typically provide more flexible terms when setting deposit limits.
Credit unions tend to require membership based on some shared relationship, such as employment at a particular company or organization, attendance at specific schools or churches, belonging to labor unions or living in specific geographic areas. Some credit unions are open to all, but most only accept people with personal ties to them or their cause as members – which means fewer financial products for members but often more competitive savings and CD rates compared with banks.
One drawback to credit unions is their limited deposit insurance protection compared to banks, such as the $250,000 limit from the Federal Deposit Insurance Corporation. However, the National Credit Union Administration offers up to $250,000 of coverage per individual account owner at one insured credit union – this includes shared ownership accounts maintained by both primary owner and co-owners with equal rights to withdraw funds in their name from these accounts.
Savings Accounts
Credit unions are non-profit financial institutions led by teams focused on protecting the members’ finances. Because of this, credit unions benefit from strong federal protection through an entity known as the National Credit Union Share Insurance Fund (NCUSIF) – much like what FDIC offers banks.
NCUA insurance covers up to $250,000 for each account category at a federally insured credit union, such as checking and savings accounts, retirement accounts like traditional IRAs or Roth IRAs and Keogh retirement accounts. Also covered by NCUA is personal revocable trust accounts and Coverdell Education Savings Accounts (formerly education IRAs).
The NCUSIF is supported by the full faith and credit of the United States, so no member credit union has lost insured funds since its formation in 1970. Furthermore, as well as providing insurance coverage, NCUSIF manages federally insured credit union assets while running programs designed to help them navigate financially challenging times.
To qualify for federal deposit insurance at a credit union, individuals must live, work, worship and study within an area the credit union was founded to serve. Individuals meeting these criteria typically join through employers or family memberships; some credit unions even permit donations as another method.
Money Market Accounts
Money market accounts offer higher interest rates and greater access than savings accounts, making them ideal for short-term saving goals. They’re insured up to $250,000 by both the FDIC and NCUA – making these an excellent place for holding cash you might need in a couple months for payments such as taxes,” according to Kocanda.
Money market accounts can be found at banks, credit unions and some online financial institutions; before opening one it is wise to research its insurance coverage and minimum deposit requirements as well as fees that might apply as these vary among each financial institution.
At banks, money market deposits are insured up to $250,000 per depositor depending on ownership categories and account counts. For instance, if you own two checking and savings accounts simultaneously at one institution and you’re the sole owner for both of them, those two accounts will be aggregated for insurance purposes under one single ownership category; any subsequent accounts won’t fall under its protection.
At a credit union, money market deposits are placed in shares that are insured up to $250,000. Furthermore, the National Credit Union Administration (NCUA) contributes funds toward potential losses; similar to what happens with bank accounts. Furthermore, multiple beneficiary trust accounts and those established for charitable causes are protected in case the credit union closes down.
Certificates of Deposit (CDs)
Certificate of Deposit, or CD, accounts at banks or credit unions offer an attractive way of keeping money safe for an agreed upon timeframe, and in exchange they typically offer higher interest rates than standard savings accounts. Furthermore, federal deposit insurance protects your savings in case the institution goes bust – an added assurance if anything should go amis.
Many banks and credit unions offer CDs that are FDIC-insured up to $250,000 per depositor, while credit unions provide similar coverage through the National Credit Union Administration, or NCUA. You can easily determine whether your financial institution provides federal deposit insurance by using either BankFind from FDIC or CU Locator from NCUA – these tools make finding federal deposit insurance easy!
If a bank or credit union fails, either the NCUA or FDIC will quickly facilitate their deposits being transferred to another financially sound bank, or in the case of NCUA issue checks up to their insured limits as checks issued directly by NCUA to depositors. This insurance coverage extends to single-ownership deposit types like savings, checking, money market accounts as well as shared-ownership deposit types like share certificates. It also applies to retirement accounts like traditional IRAs as well as revocable trust accounts created due to written trust agreements created via written trust agreements and irrevocable trust agreements created due to written trust agreements.
Be mindful that withdrawing CD funds prior to maturity date could incur an early withdrawal penalty, often significant. This could reduce your final balance and prevent you from meeting savings goals or meeting financial obligations that have come your way.
Retirement Accounts
Credit unions also provide special tax-advantaged accounts, including health savings accounts (HSAs) and 529 education savings accounts. And much like banks, credit unions return profits back to members in the form of lower rate loans or higher yield savings accounts; although unlike bank deposits these profits aren’t protected by federal guarantees.
However, the National Credit Union Share Insurance Fund — supported by the full faith and credit of the United States — guarantees all funds deposited with federally insured credit unions. Your standard share account (savings, checking and money market accounts) can be insured up to $250,000 per member; while joint accounts without designated beneficiaries – such as those held by married couples without prenuptial agreements or prenups — and Revocable trust accounts such as Payable on Death/In Trust For and Living Trust Accounts are also covered under this program.
The National Credit Union Administration, or NCUA, an independent agency of the U.S. Government, regulates, charters and insures credit unions nationwide. Membership may be restricted to specific partner companies or geographic regions; however, many credit unions now offer more lenient membership requirements that allow anyone to join. It’s essential that no matter how you save, you understand how much of your savings is protected against loss.
Trust Accounts
NCUA insurance protects checking, savings and money market accounts at federally insured credit unions as well as certain retirement and trust accounts that require special protection. Individual or family share accounts typically qualify for $250,000 of coverage; joint accounts, certain retirement accounts and revocable or irrevocable trust accounts have different coverage limits. Typically, in order to be insured by a credit union, primary owners of shared accounts must belong within its field of membership and appear as members on record. Co-owners on joint accounts and beneficiaries of revocable trust accounts who are members are also covered; beneficiaries of irrevocable trust accounts may include natural people as well as charitable organizations and non-profit entities.
NCUA rules are based on information recorded in credit union account records, such as signature cards, passbooks and computer records. Supplementary documentation may be necessary to confirm ownership and beneficiary of trust accounts. A trustee must be able to demonstrate through records kept during normal course of business that an account owner has an identifiable stake in funds held within that account – for example if someone sets up an informal revocable trust such as payable on death (POD), Totten Trust or in trust for (ITF) account – that such accounts are insured as irrevocable trust accounts by NCUA insurance policies.
