How safe are credit unions amid bank turmoil? (2024)



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The failure of Silicon Valley Bank (SVB) and other institutions in recent weeks sparked fear that contagion could catch on, leading many depositors to move their funds to major banks for safety.

However, two regulatory experts say credit unions are actually safer places for folks to put their money than traditional banks, pointing to how the institutions – which largely cater to individuals rather than companies – are much less vulnerable to bank runs or liquidity issues.

How safe are credit unions amid bank turmoil? (2)

Experts say credit unions are a safer place for individuals to park their money than banks. (iStock / iStock)

Credit unions – which are owned by their members – have their own regulator, the National Credit Union Administration (NCUA), which is very much like the Federal Deposit Insurance Corporation (FDIC) that regulates banks. The NCUA insures depositors' funds up to the same threshold as the FDIC, $250,000.

Just like banks, deposits above the $250,000 mark at credit unions are uninsured, But unlike banks, credit unions do not have the same level of risk exposure to the factors that took down SVB and other troubled lenders.


Mark Treichel, who spent 33 years at the NCUA and served as executive director of the agency, points out the recent bank runs have been driven by uninsured deposits, and it is "substantially less likely" for that to happen to a credit union.

Treichel, who now assists credit unions with the NCUA via his company, Credit Union Exam Solutions, points out that the banks that have failed recently – namely SVB, Signature and Silvergate – all held a large percentage of uninsured deposits, with SVB's uninsured deposits upwards of a whopping 90%.

How safe are credit unions amid bank turmoil? (3)

A worker, middle, tells people that the Silicon Valley Bank headquarters is closed on March 10, 2023 in Santa Clara, California. Silicon Valley Bank hit with a bank run amid a liquity crisis. (Justin Sullivan/Getty Images / Getty Images)

When several uninsured depositors became alarmed over SVB's liquidity issues, many scrambled to pull out their money, causing regulators to step in and stop the bleeding.

However, credit unions are much less likely than banks to have that problem, given that they cater to working people and their depositors are largely individuals whose accounts are lower than $250,000.

Treichel says data shows that the largest 800-or-so banks in the U.S. have an average of roughly 36% of their deposits uninsured. However, even the largest credit unions with more than a billion dollars in assets only have around 9% of their deposits uninsured.


Dr. Angela Vossmeyer, associate professor of economics at Claremont McKenna College and faculty research fellow at the National Bureau of Economic Research, agrees that on the liability side, credit unions are in a much better place than banks because a greater percentage of their deposits are insured.

On the asset side of things, credit unions and banks alike could run into the same problem SVB had by investing in long-term Treasury securities that end up underwater as the Federal Reserve hikes rates.

How safe are credit unions amid bank turmoil? (4)

Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on Nov. 2, 2022. The central bank has hiked interest rates nine consecutive times since last spring as it aims to rein in inflation. (Photo by Liu Jie/Xinhua via Getty Images / Getty Images)

However, Vossmeyer says the new Bank Term Funding Program set up by regulators in the aftermath should provide the liquidity institutions need in the instance of that occurring moving forward, and both banks and credit unions have access to the program.

It is important to note that credit unions can fail, and have, even prior to the current banking crisis. However, their depositors are made whole from payouts from the NCUA insurance fund.


Vossmeyer says most credit unions are regulated by the NCUA, but any members concerned about the safety of their deposits can check to be sure their institution is covered by that insurance fund.

In the meantime, she reiterated that a full-fledged "bank" run on a credit union would be highly unlikely, telling FOX Business, "It would take a lot of odd stuff to happen."

How safe are credit unions amid bank turmoil? (2024)


How safe are credit unions amid bank turmoil? ›

While credit unions don't receive FDIC protection, member funds are generally insured up to $250,000 by the National Credit Union Administration. (All federal credit unions and most state credit unions offer this coverage.)

Are credit unions safe if banks collapse? ›

If the bank fails, you'll get your money back. Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch. Credit unions are insured by the National Credit Union Administration.

Are credit unions safer than banks during a recession? ›

bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.

Are any credit unions in financial trouble? ›

National Credit Union Administration (NCUA) credit unions had seven conservatorships/liquidations in 2022 and two so far in 2023. While credit unions have experienced several failures in 2022, there were no Federal Deposit Insurance Corp.

What is the downside of banking with a credit union? ›

Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.

How safe is my money in a credit union? ›

Which is Safer, a Bank or a Credit Union? As long as you are banking at a federally insured institution, whether it is a credit union insured by the NCUA or a bank by the FDIC, your money is equally safe. Credit unions are owned by the members—your savings account at a credit union is a share of ownership.

What happens if a credit union goes bust? ›

If a credit union is placed into liquidation, the NCUA's Asset Management and Assistance Center (AMAC) will oversee the liquidation and set up an asset management estate (AME) to manage assets, settle members' insurance claims, and attempt to recover value from the closed credit union's assets.

Is my money safer in a credit union than a bank? ›

Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts. The FDIC insures deposits at most banks, and the NCUA insures deposits at most credit unions.

Why do banks not like credit unions? ›

For decades, bankers have objected to the tax breaks and sponsor subsidies enjoyed by credit unions and not available to banks. Because such challenges haven't slowed down the growth of credit unions, banks continue to look for other reasons to allege unfair competition.

Are credit unions also at risk? ›

Like banks, which are federally insured by the FDIC, credit unions are insured by the NCUA, making them just as safe as banks.

What is the biggest risk to credit unions? ›

Liquidity Risk: The risk of not having sufficient liquid assets to meet the credit union's short-term obligations, which could impact its ability to function effectively and serve its members. Interest Rate Risk: Credit unions often have a significant portion of their assets and liabilities tied to interest rates.

What happens to my money if a credit union fails? ›

When a credit union fails, the NCUA is responsible for managing and closing the institution. The NCUA's Asset Management and Assistance Center liquidates the credit union and returns funds from accounts to its members. The funds are typically returned within five days of closure.

Why are credit unions struggling? ›

Credit unions facing challenges in managing risks, such as credit risk or cybersecurity threats, may find themselves in difficult situations. Demographic Shifts: Changes in demographics, including aging populations and shifting consumer behaviors, can impact the demand for certain financial products and services.

Should I move all my money to a credit union? ›

What Are the Major Advantages of Credit Unions? Credit unions typically offer lower closing costs for home mortgage loans, and lower rates for lending, particularly with credit card and auto loan interest rates. They also have generally lower fees and higher savings rates for CDs and money market accounts.

Should I put my money in a bank or credit union? ›

If you want higher deposit rates and don't need access to branches across the country, for example, you might prefer a credit union. If you want access to in-person services and don't mind lower interest rates, a bank might be more suitable.

What's the best credit union to join? ›

Here are some of the country's top credit unions:
  • Alliant Credit Union. Alliant offers an above-average interest rate for savings. ...
  • Consumers Credit Union. ...
  • Navy Federal Credit Union. ...
  • Connexus Credit Union. ...
  • First Tech Federal Credit Union.

Can a bank run happen at a credit union? ›

If you're an individual depositor, the short answer is "probably not." Insured banks and credit unions are secure places to keep and manage your money. It's safer to deposit your funds into a bank account than it is to stash cash at home, where it could be subject to theft or be lost in a disaster.

Can the government take your money from a credit union? ›

Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circ*mstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.

Are joint accounts NCUA insured to $500,000? ›

The NCUSIF provides each joint account holder with $250,000 coverage for their aggregate interests at each federally insured credit union. For example, a two person joint account with no beneficiaries has $500,000 in coverage.


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