Are Credit Unions Insured by FDIC?
- The first known credit union began operations in the English town of Rochdale in 1844. The union's membership consisted of local weavers and workers. Credit unions, formed to help meet the financial needs of farmers and shopkeepers, appeared in Germany late in the 19th century. The first United States credit union opened in New Hampshire in 1909. In 1934, the Credit Union Act introduced government supervision of credit unions. In 1970, the National Credit Union Administration began offering deposit protection similar to FDIC insurance.
- Credit unions are owned by members, not shareholders. The members pool together their money in deposit accounts, such as checking accounts and Certificates of Deposits. The credit unions loan out deposited funds, but price loans to cover costs and not to generate a profit. An elected board prices deposits and loans. All members are eligible to stand for election to the board. Many credit unions restrict membership to certain industries or residents of particular areas.
- Credit unions provide members with higher yields on deposits and lower rates on loans. Since credit unions have smaller markets, they are likely to review credit requests on a case by case basis. Large banks have firm guidelines on credit qualifications because any inconsistency could lead to discrimination lawsuits.
- Credit Unions are not FDIC insured, but the NCUA provides protection through the National Credit Union Share Insurance Fund, or NCUSIF. The United States Government backs the fund, and it has the same $250,000 coverage limits as FDIC insurance.
People who wish to extend their coverage under NCUSIF or FDIC can open accounts at multiple banks or credit unions. Each individual receives $250,000 of coverage, so adding a pay-on-death beneficiary to your accounts increases coverage to $500,000 per financial institution. - Not all credit unions are members of the NCUA, and non-members are not covered by NCUSIF. Some credit unions are covered by state guarantee funds, but credit union members should check with their union to see what protections are in place.
When banks or credit unions fail, the insurance funds protect principal and interest already accrued. The FDIC and NCUSIF can sell deposits to other institutions who have the right lo lower the interest rates on CDs for the remainder of the term.
