Why Are Credit Unions Safer Than Banks? Are they Insured? (2024)

FAQs

Why Are Credit Unions Safer Than Banks? Are they Insured? ›

Why are credit unions safer than banks? Like banks, which are federally insured by the FDIC, credit unions are insured by the NCUA, making them just as safe as banks. The National Credit Union Administration is a US government agency that regulates and supervises credit unions.

However, because credit unions serve mostly individuals and small businesses (rather than large investors) and are known to take fewer risks, credit unions are generally viewed as safer than banks in the event of a collapse.

Credit unions can be ideal for a low-interest loan, lower mortgage closing costs, or reduced fees, but you'll need to qualify for membership. Larger banks may offer you more choices regarding products, apps, and international or commercial products and services, and anyone can join.

Both the NCUA and FDIC are responsible for insuring funds in the event that a financial institution fails. The NCUA insures credit union accounts, while the FDIC provides federal insurance for bank accounts.

Since credit unions are member-driven and not for profit, members receive higher interest rates on savings, lower rates on loans and lower fees. On the other hand, profits made by banks are only distributed among their shareholders, meaning that the money banks make isn't returned to the people they make it from.

Credit unions are backed by the National Credit Union Share Insurance Fund (NCUSIF), which is equivalent to the Federal Deposit Insurance Corporation (FDIC) for banks. This safety net guarantees your funds, typically up to $250,000 per depositor, should any unexpected turbulence occur.

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.

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.

Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.

One of the major downsides of traditional banking is the potential for fees. Traditional banks often charge various fees for services such as overdrafts, ATM withdrawals, and account maintenance. These fees can quickly add up and eat into your savings if you're not careful.

What happens if a credit union fails? ›

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.

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.

Attractive rates.

At a credit union, the net proceeds are distributed back to the members in the form of lower fees, lower lending rates, and higher returns on savings. Open a Savings Account Today!

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.

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.

Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.