Many people argue over whether banks or credit unions are the best banking choice, citing reasons like convenience, customer service and interest rates. What’s never discussed, however, is the way in which accounts held by these institutions are insured. Bank accounts are insured by the FDIC. while a completely different agency, the NCUA. insures credit union deposits.
So are there significant differences between the two agencies? Is one form of insurance more reliable than the other?
The Federal Deposit Insurance Corporation (FDIC)
The FDIC is an independent government agency founded in 1933 that protects customer deposits into banks and savings associations. FDIC insurance is fully backed by the U.S. government and covers all deposit accounts, such as checking, savings, CDs and money market accounts.
FDIC Insurance Coverage
The FDIC insures qualifying accounts up to the limit per depositor, per institution. That means if you hold two accounts at one bank, both with balances that meet the maximum insurance amount, only half of your money is actually protected. The coverage limits were recently increased. Here are a few examples of how much money the FDIC can currently protect:
- Single Account: $250,000 per owner
- Joint Account: $250,000 per co-owner
- Certain Retirement Accounts: $250,000 per owner
What’s Not Protected
Just because your bank is insured, however, does not mean all your accounts are, even if they’re under $250,000. The FDIC will not insure other financial products that may be offered by banks, like stocks. bonds, mutual funds, money market funds, T-bills, safe deposit boxes, insurance products and annuities.
Additionally, only your principal balance and interest that remain under the limit are guaranteed — if any interest you gain exceeds the maximum insurance amount, it’s vulnerable should something go wrong with your bank so you must keep an eye on your balance. Some accounts have special insurance rules that apply to them specifically as well, which is why it’s very important to check with your bank to determine exactly how much of your money is actually covered and which accounts aren’t.
Are All Banks FDIC Insured?
Somewhat surprisingly, there is no requirement for a bank to be FDIC-insured. However, it’s become a given for most since non-insured banks just can’t compete with those that offer full protection.
Are Credit Unions FDIC Insured?
Credit unions are not FDIC insured.
This fact does not make them less safe, however. The NCUA, much like the FDIC, is an independent federal agency. It is charged with chartering, supervising and insuring federal credit unions. It’s backed by the U.S. government and operates the National Credit Union Share Insurance Fund (NCUSIF) .
The National Credit Union Administration (NCUA) Insurance Coverage
The insurance coverage the NCUA provides is practically the same as the FDIC. Individual accounts are protected up to $250,000. One difference with NCUA insurance, though, is that it covers share and draft accounts, which are specific to credit unions and do not exist at banks. Further, the $250,000 limit applies to the total deposits with one institution, but additional coverage is available through the NCUSIF in some cases.
What’s Not Protected
Again, like the FDIC, the NCUA does not insure any money invested in stocks, mutual funds, annuities, etc. Always confirm with your credit union which accounts are covered.
Are All Credit Unions NCUA Insured?
Only federal credit unions are automatically covered by NCUA insurance. Some state-chartered institutions are not insured by the NCUA and thus, don’t offer the same protection against credit union failure.
Even so, state-chartered credit unions may still elect to be NCUA insured and most are. Only five percent of credit unions opt to forgo this option and remain privately insured.
So Which One Is Safest?
You may be more familiar with the FDIC because there are just many more banks than credit unions, many of which have failed and made FDIC insurance a newsworthy topic. Even though credit unions tend to be smaller financial institutions with fewer customers, they are in no way inferior to banks when it comes to the safety of your money.
Both the FDIC and NCUA are “backed by the full faith and credit of the United States government.” This means that the only real difference between the two is the type of institution they insure, not the reliability of that insurance.
As far as financial security goes, it really comes down to the particular institution. FDIC or NCUA, bank or credit union, your money will be safe as long as you deposit with an insured financial institution within the set limits. Even though non-insured banks and credit union are rare, they do exist, so it’s important to double check whether your accounts are held at an NCUA or FDIC-insured financial institution.