Silicon Valley Bank, one of the 20 largest banks in the United States, collapsed out of nowhere earlier this month. Two other notable banks failed early in 2023 as well.
The SVB failure created some temporary panic as some Americans wondered whether their money was safe at a bank. The government even moved to create an emergency backstop for SVB and other banks.
The entire process brought a renewed focus on the FDIC and their $250,000 limit at insured banks. But what about credit unions? What protections do account holders at credit unions enjoy?
That's what a listener of the Clark Howard Podcast recently asked.
Are Credit Union Deposits Insured Like Bank Deposits With the FDIC?
You probably know that FDIC-insured banks protect your deposits up to $250,000. But what about credit unions? Do they get any of the same protections?
That's what a Clark listener wanted to know on the March 16 podcast episode.
Asked Alan in Florida: "You recommend not keeping more than $250,000 in any one bank. What about credit unions? Are they insured by the government?"
The Federal Deposit Insurance Corporation (FDIC) does not cover credit unions. But the National Credit Union Administration (NCUA) provides $250,000 in deposit insurance for credit unions.
Federal credit unions are required to be NCUA members. Most, but not all, local credit unions are backed by the NCUA. Make sure you choose a credit union with NCUA coverage.
“The NCUA is the federal equivalent of the FDIC for banks. The coverages are essentially identical. It’s the real deal at credit unions,” Clark says.
Clark is a big fan of credit unions. In addition to the fact that they're a go-to place for good rates for auto loans, credit unions are owned by their own members. Therefore they're designed to cater to those members rather than to shareholders through maximizing profits.
So you’re more likely to get better customer service at a credit union, especially compared to what Clark calls a “monster mega bank” (Bank of America, Wells Fargo, Citi Bank and JPMorgan Chase).
Why Aren’t People Concerned With Deposits at Credit Unions Right Now?
The biggest scrutiny after SVB failed went to super-regional banks, or “mid-sized” banks. More than 50% of deposits at these banks, which sit just below the Big Four in size, are not insured.
How come credit unions didn’t experience the same level of hand-wringing and panic? It’s a question that people have asked Clark again and again this week.
“Credit unions overwhelmingly do accounts for individuals,” Clark says. “Mid-sized banks overwhelmingly serve business accounts. Business accounts are almost always going to be many times larger than $250,000.
“It’s very rare in a credit union that there are deposits on hand that exceed the $250,000 NCUA limit. That’s why there’s been no run on credit unions.”
Credit unions may not be insured by the FDIC. But you can still get an equivalent federal $250,000 worth of insurance through the NCUA.
In many ways, Clark prefers credit unions to banks. In terms of the issues that the SVB failure surfaced this week, credit unions are mostly immune because only a small percentage of credit union accounts contain more than $250,000.
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