You may have heard dire news reports of bank failures over the last few months. Understandably this domino of bank collapses might be a cause for concern when you think about your own deposits and investments. Is there any chance your financial institution might be next? What even lead to these failures? If big-name banks can fail so easily, are credit unions even safe?
Go ahead – take a deep breath and relax – we have good news: your money is extremely safe with a credit union.
WHY HAVE BANKS BEEN COLLAPSING?
To understand why your own investments are safe, it’s important to look at what happened over the last few months that sparked this crisis.
NARROW CLIENT FOCUS
One of the main issues is the niche clientele that these banks served. Each courted vastly wealthy individuals (often from the tech sector) who were enticed to make enormous deposits. A significant chunk of those billions of dollars in deposits went into bonds and loans, with the assumption being that interest rates would remain low. That was not the case. The Federal Reserve has been ratcheting up the interest rate in order to address inflation, which caused those bonds and loans to sink in value. But that’s just the start of the problem
UNINSURED DEPOSITS
While the Federal Deposit Insurance Corporation (FDIC) protects $250,000 of deposits at banks it insures, many of the customers at these failed institutions had deposits well beyond this limit. Uninsured deposit holders (or really any customers) can pull their money out of a bank if they suspect it is in financial trouble. When this happens, the rapid loss of those available funds snowballs the situation and causes a total collapse.
ARE CREDIT UNIONS SAFE?
The circ*mstances leading up to the recent bank failures were notably specific to those institutions. The situation you can expect to experience at a credit union is quite different.
DEPOSITS AT CREDIT UNIONS ARE OFTEN INSURED
The failures we have seen in recent months are highly unlikely at a credit union. Credit unions are similarly insured up to $250,000 by either the National Credit Union Administration or private organizations like American Share Insurance (ASI), rather than the FDIC. This insurance covers each, individual account and is typically more than sufficient for most members.
Without the substantial risk to deposited funds, credit unions don’t face the same likelihood of mass panic withdrawals that led to the recent bank failures. For those who do exceed the limit, financial advisors recommend placing the overage in another financial institution that also insures their deposits.
MEMBERS OVER PROFITS
Credit unions have a community focus and serve members with a wide variety of needs. Diversity of financial journeys requires various products and services are offered in order to meet the many needs of members. The breadth of service credit unions offer affords them resilience. A key element of the recent failures was a narrow focus on particular clientele, mostly from a single industry.
Further, a crucial distinction between credit unions and banks is that credit unions are dedicated to the well-being of their members, as opposed to bank investors who focus on maximizing profit. Credit union leadership is member-focused and often subject to more stringent governmental oversight than banks, making the safety of your financial future a priority. The security of your money and stability against market disturbances represents only a few of the reasons that nearly one-third of the United States population has membership in a credit union.
…and that is a bit of very good news! Lingering questions about your savings? We’re here to help! Swing by any branch location to speak with a teammate today.
Posted In: Tips For Managing Finances
FAQs
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.
Are credit unions at risk of collapse? ›
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.
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.
Why should I belong to a credit union? ›
Credit unions typically charge fewer fees than banks, and the fees they do charge are far lower than what you'd pay at a bank. Also, they typically charge lower rates for loans and pay higher rates on savings. Credit unions promote financial literacy, with programs on money management for all ages.
Can credit unions seize your money if the economy fails? ›
The FDIC and National Credit Union Administration (NCUA) oversee banks and credit unions, respectively. These federal agencies also provide deposit insurance. When a financial institution is federally insured, money deposited into a bank account will be secure even if the financial institution shuts down.
How many credit unions fail? ›
The average annual failure rates over 1890-2016 for tiny credit unions and tiny banks were 0.62 and 0.68 percent; for large credit unions and large banks the failure rates were 0.02 and 0.53 percent, and so on.
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.
What is a threat to credit unions? ›
Cyberattacks are one of the greatest threats financial institutions face. The average financial security breach costs approximately $5.97 million. For credit union cybersecurity, this means keeping up to date with the latest cyber solutions is critical to protecting member data and their good name.
Will credit unions survive? ›
To Survive, Future Credit Unions Must Blend Apps With Modernized Branches. According to Aux, a credit union service organization in the Denver area, both banks and credit unions have been losing branch traffic as younger sets fully adopt online and mobile banking.
Should I move my money from a bank to a credit union? ›
Switching from a bank to a credit union can save you money and give you peace of mind knowing you have a trustworthy banking partner that puts your interests above those of outside shareholders.
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.
Is Capital One safe from collapse? ›
Deposits are insured up to $250,000 per depositor, per ownership category at Capital One. Deposit insurance is calculated dollar-for-dollar—that includes principal plus any interest accrued.
Is there a downside to a credit union? ›
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. May offer fewer products and services.
Why might a person choose a credit union over a bank? ›
People choose banks primarily because of the convenience of multiple branches across the country, along with better technology. On the flip side, people choose credit unions primarily because of discounted loan rates, higher interest rates and better customer service.
Should I join a bank or a credit union? ›
Lower fees: Because credit unions are not-for-profit, they typically charge lower fees than banks. Higher savings rates: On average, you'll find better interest rates at credit unions than banks, though some high-yield accounts at banks rank at the top of the industry.
What is the downside of a credit union? ›
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. May offer fewer products and services.
Which is safer, NCUA vs FDIC? ›
One of the only differences between NCUA and FDIC coverage is that the FDIC will also insure cashier's checks and money orders. Otherwise, banks and credit unions are equally protected, and your deposit accounts are safe with either option.
Are credit unions healthier than banks? ›
Credit unions are insured by the National Credit Union Administration (NCUA), whereas banks are covered by the Federal Deposit Insurance Corporation (FDIC). Both the NCUA and FDIC provide the same level of protection and will insure your deposits up to $250,000.
