In times like these, with bank failures in the news, it’s time to revisit how your deposits are insured at credit unions.
Before we dive in, it’s important to revisit the 2008 financial crisis. During that time, many people became understandably concerned about the safety of their deposits in financial institutions. The 2008 financial crisis was a stark reminder of the importance of deposit insurance and the need for strong regulatory oversight of financial institutions. In 2022, this is the scenario where we are today with 2nd and 3rd largest bank failures.
The National Credit Union Administration (NCUA) and its deposit insurance program, the National Credit Union Share Insurance Fund (NCUSIF), played a critical role in protecting depositors’ savings during this time. In this article, we will explore how the NCUA deposit insurance program works and how depositors can insure more than the standard amount of $250,000 in a single credit union.
What is a credit union?
A credit union is a unique financial institution prioritizing its members’ financial well-being. Unlike traditional banks that focus on profits, credit unions operate as not-for-profit organizations owned and operated by their members.
Members of credit unions have access to a range of financial products and services, including savings accounts, checking accounts, loans, and credit cards.
What is the NCUA?
The National Credit Union Administration (NCUA) is a federal agency established in 1970 to provide oversight and regulation of credit unions in the United States. The agency was created in response to the growing number of credit unions and the need for federal regulation and supervision.
Before the creation of the NCUA, credit unions were regulated at the state level, which resulted in inconsistent regulations and supervision across different states. This made it difficult for credit unions to operate across state lines and created barriers to growth and expansion.
The NCUA was created under the Federal Credit Union Act, which gave the agency the authority to regulate and supervise federal credit unions. The agency is also responsible for administering the National Credit Union Share Insurance Fund (NCUSIF), which provides deposit insurance to protect depositors’ savings in case of a credit union failure.
Over the years, the NCUA has played an essential role in maintaining confidence in the credit union system and protecting depositors’ savings. The agency has responded to numerous credit union failures and helped prevent further losses to depositors.
Today, the NCUA oversees over 5,000 federal credit unions with assets totaling over $1.7 trillion. The agency plays a vital role in maintaining a safe and sound credit union system and protecting depositors’ savings.
What is the NCUSIF?
Like the FDIC, the NCUA also provides deposit insurance to protect depositors’ savings in the event of a credit union failure. The deposit insurance program is called the National Credit Union Share Insurance Fund (NCUSIF).
The NCUSIF was also established in 1970 as a response to the growing number of credit unions and the need for deposit insurance. The NCUSIF is funded through premiums paid by insured credit unions and is administered by the NCUA.
The purpose of the NCUSIF is to protect depositors by providing insurance coverage for their deposits at credit unions. The standard insurance amount is $250,000 per depositor per insured credit union, the same as the FDIC insurance limit. Like the FDIC, the NCUSIF provides coverage for savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs).
Since its establishment, the NCUSIF has played an important role in maintaining confidence in the credit union system and protecting depositors’ savings. The NCUSIF has responded to numerous credit union failures and has helped to prevent further losses to depositors.
How the National Credit Union Share Insurance Fund Works
NCUA deposit insurance works similarly to FDIC insurance in providing coverage for depositors in case of a credit union failure. The standard insurance amount is $250,000 per depositor per insured credit union, which means that if you have less than $250,000 in deposits at a single credit union, your deposits are fully insured.
To insure more than $250,000, there are a few options available. One option is to open accounts at multiple credit unions. For example, if you have $500,000 in savings, you could open accounts at two different credit unions and deposit $250,000 in each account. This would ensure that all of your deposits are fully insured.
Another option is to use different ownership categories. The NCUSIF provides different ownership categories that offer separate insurance coverage. For example, if you have a joint account with your spouse, the account would be insured up to $500,000 ($250,000 for your share and $250,000 for your spouse’s share). The NCUSIF also provides separate insurance coverage for retirement accounts, such as individual retirement accounts (IRAs).
To recap, you can insure more than the standard amount of $250,000 through the NCUSIF:
- Different ownership categories: Depositors can have accounts in different ownership categories to increase their coverage. The NCUSIF provides coverage for different ownership categories, such as individual accounts, joint accounts, retirement accounts, and trust accounts.
- Multiple credit unions: Depositors can spread their deposits across multiple credit unions to increase their coverage. Each credit union is insured separately by the NCUSIF, so depositors can have accounts at different credit unions to increase their coverage.
To ensure that your deposits are fully insured, it is essential to understand the coverage limits and ownership categories of the NCUSIF. The NCUA provides resources and tools, such as the Share Insurance Estimator, to help individuals determine their insurance coverage.
In addition to understanding the coverage limits, it’s also important to choose a credit union that is insured by the NCUSIF. Not all credit unions are insured by the NCUSIF, so it’s important to check with your credit union to ensure that it is insured.