Credit unions, as fiscally conservative member-focused non-profit institutions that distribute profits to their members, are surely safer than for-profit banks with return-hungry shareholders, right? That was my thought. Much to my surprise, however, my research found that the opposite is true statistically. In the last decade (April, 2013 – March, 2023), 126 federally insured credit unions (out of ~4,900) have failed and been taken over by the U.S. government, while 69 (out of ~8,300) federally insured banks have been taken over during that same time period.
I’ve long been a fan and member of a number of credit unions and held significant deposits with them. As I have with my bank deposits, I also wanted to make sure my deposits at credit unions were safe. In light of interest rate hikes and depositor skittishness resulting in some high profile bank closures in recent weeks, it’s not only worth knowing the FDIC basics and FDIC insurance limit amounts that impact bank deposits, but also the equivalent for credit unions under the NCUA. The same industry-wide factors contributing to bank runs could also extend to depositors doing the same at credit unions. Are your deposits safe at a credit union? Let’s find out. In this article, we’ll cover NCUA basics, NCUA insurance limits (maximum deposit amounts), comparisons between the NCUA and FDIC, coverage examples, and more.
What is the NCUA?
The National Credit Union Administration (NCUA) is an independent agency of the U.S. federal government that administers the National Credit Union Share Insurance Fund (NCUSIF). It’s predecessor, the Bureau of Federal Credit Unions, was created in 1934 in response to the financial turmoil created by the Great Depression – and eventually transformed into the NCUA in 1970.
Similar to the FDIC’s Deposit Insurance Fund, the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government. As with FDIC-insured deposits, no fully insured depositor has ever lost a penny of NCUA-insured deposits. Instead of being focused on commercial banks and savings institutions, however, the NCUSIF insures member savings that are deposited with federally insured credit unions, which account for about 98% of all credit unions in the United States. Deposits at all federal credit unions and the vast majority of state-chartered credit unions are covered by NCUSIF insurance.
What Credit Unions are NCUA Insured?
As noted, the vast majority of credit unions are insured, but some are not, so depositors should definitely do their homework to confirm before placing deposits. Here is an NCUA member credit union search tool to help you confirm. As a general best practice, always check to confirm that a financial institution you are doing business with is FDIC, NCUA, or SIPC insured before transferring over any of your hard-earned personal funds to them.
What Are NCUA Insurance Limits (Maximum Deposit Amounts)?
The NCUA insurance amount limit (maximum deposit amount) is $250,000 per share owner, per insured credit union, for each account ownership category. Read that a few times over for it to sink in. Account ownership category is important, and we’ll cover what those are in a bit.
How Does NCUA Insurance Compare to FDIC Insurance?
If the NCUA insurance cap sounds familiar, that’s because it is – the FDIC has a similar insurance cap: $250,000 per depositor, per insured bank, per ownership category. NCUA vs FDIC insurance ownership categories are mostly the same, but there are some small differences.
What are the NCUA Insurance Ownership Categories? (Accounts and Investments Covered by NCUA Insurance)
Since the NCUA insures $250,000 per share owner, per credit union, per ownership category, it would be good to know what the NCUA ownership categories (account types) are. The NCUA states that they insure the following ownership categories:
- Single owner accounts
- Joint owner accounts
- Certain retirement accounts, in aggregate (total between Traditional IRA, Roth IRA, KEOGH plans)
- Revocable trust accounts ($250,000 for each eligible beneficiary named or identified in the revocable trust, subject to limitations and requirements)
- Irrevocable trust accounts
- Employee benefit plan accounts
- Corporation, partnership and unincorporated association accounts
- Public unit or government depositor accounts
The 4 most common ownership categories are single owner accounts, retirement accounts, joint accounts, and revocable trust accounts.
The NCUA ownership list is nearly identical to the FDIC’s, but absent from the NCUA’s list are a few rare ownership categories that are explicitly stated for the FDIC:
- Mortgage servicing accounts for principal and interest payments
- Accounts held by a depository institution as the trustee of an irrevocable trust
- Annuity contract accounts
- Public bond accounts
- Custodian accounts for Native Americans
- Accounts deposited by an IDI pursuant to the Bank Deposit Financial Assistance Program of the Department of Energy
Investments Covered by the NCUA include deposit-type accounts – e.g. savings, checking, money market, and certificates of deposit.
NCUA Insurance Coverage Examples:
Here’s a hypothetical example of NCUA insurance coverage limits for one family at one NCUA-insured credit union:
- Spouse #1 has an individual checking account: $250,000
- Spouse #2 has an individual savings account: $250,000
- Spouse #1 has an IRA account: $250,000
- Spouse #1 and spouse #2 share a joint certificate of deposit account: $500,000 ($250,000 per depositor X 2)
- Spouse #1 has a revocable trust payable on death (POD) to 1 beneficiary (spouse #2): $250,000
- Spouse #2 has a revocable trust payable on death (POD) to 4 beneficiaries (spouse #1, child #1, child #2, and child #3): $250,000 for each eligible beneficiary ($1,000,000 total)
In this example, each of these accounts would be additive, for a total of $2,500,000 insured. Even though some of the account categories are the same, they are owned by separate depositors (spouse #1 and spouse #2). If the same family were to have all of the same accounts at a second FDIC-insured bank, that total would effectively double.
It’s worth breaking down the last 3 accounts further. In the joint account scenario (#4), there are 2 owners, so each spouse results in a $250,000 coverage limit ($500,000 total). However, in the 1 owner payable on death to 1 beneficiary revocable trust scenario (#5), the limit drops to $250,000. When more than 1 beneficiary is listed in a 1-owner revocable trust, the coverage amount limit is $250,000 per unique beneficiary (e.g. in scenario #6, 4 beneficiaries result in $1,000,000 in total coverage) – but it does not also include an extra $250,000 for the original owner. The NCUA has some good revokable trust examples here.
NCUA Insurance Calculator:
Calculating NCUA coverage totals can get a bit confusing and is something that should be double-checked. There is an NCUA insurance calculator to help with the task, if you are unsure. It’s also worth confirming with the credit union.
What Types of Investments & Accounts Does the NCUA Not Cover?
NCUA insurance does not cover all types of investment or accounts. In particular, non-deposit security-based investments such as the following are not covered by the NCUA. This includes:
- Stock investments
- Bond investments
- Mutual funds
- Crypto assets
- Life insurance policies
- Municipal securities
- U.S. Treasury bills, bonds or notes (These investments are backed by the full faith and credit of the U.S. government)
- Safe deposit boxes or their contents
If credit unions offer these types of investments (aside from safe deposit boxes), they are typically through a 3rd party investment broker – not the credit union. Those 3rd party investment brokers are typically SIPC insured. Check out my SIPC insurance overview for more details on that.
NCUA Insurance Coverage Summary:
In summary, when depositing and holding funds with a credit union:
- Make sure those funds are fully insured (through an NCUA-insured credit union)
- If they aren’t, move them elsewhere