Is My Money Safe With a Credit Union?

Some credit unions argue they are now actually safer than banks.

The rapid collapse of Silicon Valley Bank (SVB) spooked many bank customers who feared it could destabilize the whole system. It's particularly unnerving for companies, charities, and high-net-worth individuals with higher deposits, as these might fall outside of the insurance thresholds. But what about credit unions? How safe is any money you have deposited with them? And how is it protected?

How credit unions protect your deposits

Credit unions are similar to banks in a lot of ways -- both are financial institutions that offer savings accounts, checking accounts, loans, and other products. The biggest difference is that credit unions are nonprofits. They are member-owned cooperatives and often cater to specific groups of people, such as a region or industry.

When it comes to safeguarding your money, credit union deposits are insured by the National Credit Union Administration (NCUA). The National Credit Union Share Insurance Fund (NCUSIF) is similar to FDIC insurance, in that funds are insured for up to $250,000 per shareowner, per insured credit union, for each account ownership category. An ownership category is the way your money is held -- such as a single account or a joint account.

One big difference between credit unions and banks right now is that a much larger proportion of deposits are covered. According to the Credit Union National Association, more than 91% of credit union deposits are insured. In contrast, analysis from S&P Global puts the proportion of uninsured bank deposits at almost 46%. Over 90% of SVB deposits were uninsured.

Hang on, does that mean credit unions are safer than banks?

As the impact of SVB's collapse continues to send shockwaves through the system, some credit unions have been quick to tout their credentials as a safer alternative. It's certainly true that the higher proportion of insured deposits makes them less susceptible to the pressures that pulled SVB and Signature Bank under. But credit unions can and do fail for other reasons -- what's important is knowing that your funds will be protected if they do.

If you have money with a credit union, make sure the union is part of the NCUA and your funds are covered by its insurance. If you have more than $250,000 in a single bank, look at ways to ensure all your deposits are protected. That might mean opening a joint account in addition to a single account, which entitles you to an additional $250,000 in insurance per person. You could also move some funds to a different bank or credit union.

If a credit union is struggling, NCUA might step in and place the union into conservatorship -- essentially taking control of the organization. With the NCUA at the helm, if the credit union can fix its problems, control might be returned to the members. It might also merge with another credit union, or be liquidated. In each scenario, your funds would be protected by NCUSIF. The NCUA says, "No member of a federally insured credit union has ever lost a penny in insured accounts."

Making sure your money is safe

Given the events of recent weeks, the jitters surrounding bank deposits are understandable. All the same, it's worth noting that for all the uncertainty, bank customers have not lost any of their money. Even SVB customers with uninsured deposits were made whole. It isn't clear what impact the erosion of trust will have on the sector moving forward, but there are a number of consumer protections in place to ensure your cash is safe.

Whether your funds are with a credit union or a bank, FDIC insurance and NCUA insurance matter. Most major banks and credit unions are covered, so just double check your institution is signed up. If you have less than $250,000 in deposits, your money will be protected -- even if the organization fails for some reason.

If your deposits are over the insurance threshold, look for ways to cover your extra cash. You might open a new account with a different ownership category, switch to a different bank or credit union, or even open a brokerage account. See what route might work best for you. In the unlikely event that your bank or credit union fails, that insurance will make a big difference.