NCUA vs. FDIC Insurance: Safeguarding Your Finances, Explained (original) (raw)
Both the Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA) offer deposit insurance for customers of the banks and credit unions they regulate. Deposit insurance means that the federal government will ensure that you don’t lose any of your savings should your bank or credit union fail – up to a certain amount.
This helps stabilize our national banking system during times of uncertainty and economic stress. Without deposit insurance, consumers could be tempted to participate in bank runs every time they felt a negative turn in the economy – leading more banks to fail.
NCUA and FDIC insurance is essentially the same. The only difference is that FDIC insurance covers banks, while NCUA insurance covers credit unions.
Key Takeaways
- Both the National Credit Union Administration (NCUA) and Federal Deposit Insurance Corp. (FDIC) offer $250,000 of insurance coverage for each account owner.
- NCUA and FDIC insurance automatically protects your savings without you needing to do anything to opt in.
- NCUA and FDIC insurance applies to savings accounts, certificates of deposit (CDs) and money market accounts.
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What is NCUA Insurance?
The National Credit Union Administration (NCUA) is the primary regulator of federal credit unions. When a credit union becomes part of the NCUA, all eligible members and accounts are automatically insured by the NCUA’s insurance fund. The funding for the insurance fund comes from insurance premiums charged to credit unions, and is used to pay depositors back if the credit union fails.
The protection is automatic, so you don’t need to fill out any forms or pay anything to receive this protection. Here are the types of accounts covered by the NCUA insurance:
- Checking accounts
- Savings accounts
- Certificates of deposit (CDs)
- Traditional or Roth Individual Retirement Accounts (IRAs)
- Money market accounts
The NCUA does not protect every account you might have with your credit union. It doesn’t protect money invested in stocks, bonds, mutual funds, life insurance or annuities, even if you opened these accounts with your credit union.
The NCUA (National Credit Union Administration) was created in 1970 and acts similarly to the FDIC. It protects funds deposited in credit unions.
What is FDIC Insurance?
Federal Deposit Insurance Corp.(FDIC) insurance is a federal safeguard for customers who deposit their funds in insured banks. This insurance protects your money in the event of bank failure or closure. Virtually all banks in the United States are required to have FDIC insurance.
The FDIC was established after the wave of bank failures in 1933. It was established to try and prevent another Great Depression.
FDIC insurance automatically covers deposits held in banks that are FDIC-insured — you don’t need to opt in or pay anything to receive this protection. You are insured for each account you hold in different ownership categories.
Ownership categories include the following:
- Individual accounts
- Joint accounts
- Some retirement accounts
- Trust accounts
- Business accounts
Just like the NCUA, the FDIC also has a dedicated insurance fund made up of insurance premiums from member banks.
NCUA vs. FDIC
| FDIC Insurance | NCUA Insurance |
|---|---|
| Run through the federal government | Run through the federal government |
| Covers 250,000perdepositor∣Covers250,000 per depositor | Covers 250,000perdepositor∣Covers250,000 per depositor |
| Does not require savers to opt in | Does not require savers to opt in |
| Applies to savings, checking, CD and money-market accounts | Applies to savings, checking, CD and money-market accounts |
| Insures bank customers | Insures credit union customers |
Choosing Between Credit Unions and Banks
Credit unions and banks both offer consumer and business accounts. However, their customer focus is often different.
Credit Unions
- Not-for-profit
- Focus on serving their local communities
- Focus on consumer accounts and products for the individual
- Have no or low-fee accounts
Banks
- For-profit
- Have shareholders
- Tend to be more commercially focused — their primary customers are businesses
- Offer products for individuals as well, but generally at higher fees
When figuring out what type of accounts to open and what institution to use, focus on your everyday usage. You aren’t limited to only having one account in one financial institution; in fact, using multiple accounts is a strategy some people use for more security.
If you move regularly or travel a lot, it might make sense to choose a national bank with branches all over the country. If you generally use only local financial branches, a credit union with lower fees may be a more attractive option.
State-Chartered Credit Unions
While most credit unions are backed by the NCUA, some are state-chartered credit unions. In that case, the state would offer the insurance and protection rather than the NCUA. Keep in mind that state protections may vary. To check if the NCUA insures your specific credit union, search NCUA.gov.
The Bottom Line
Because the two entities seem the same, it may seem trivial to know the difference between the NCUA and the FDIC. However, understanding how your money is protected in whatever account you choose is part of smart money management. Both agencies manage their own insurance funds — the NCUA oversees the NCUSIF, and the FDIC manages the DIF.
Each provides coverage up to $250,000 per depositor. You can choose to spread your money across multiple accounts for maximum protection.
FAQ: NCUA vs. FDIC
Yes, there are limits to both NCUA and FDIC coverage. Both insurers only insure up to 250,000peraccountholder,perownershipcategory,perbank.Yourownershipcategoryis“individual”ifyouarethesolepersonontheaccount,and“joint”ifyouholdtheaccountwithanotherperson.Yourindividualaccountsareinsuredupto250,000 per account holder, per ownership category, per bank. Your ownership category is “individual” if you are the sole person on the account, and “joint” if you hold the account with another person. Your individual accounts are insured up to 250,000peraccountholder,perownershipcategory,perbank.Yourownershipcategoryis“individual”ifyouarethesolepersonontheaccount,and“joint”ifyouholdtheaccountwithanotherperson.Yourindividualaccountsareinsuredupto250,000, and your joint accounts are insured up to 500,000(twopeople,eachwith500,000 (two people, each with 500,000(twopeople,eachwith250,000 in insurance).
This means if one of your accounts has more than $250,000, then the excess amount may be lost.
The NCUA and FDIC each have their own insurance funds, the NCUSIF and the DIF, respectively. Banks and credit unions pay premiums to these funds throughout the year, just like you pay for car or home insurance. In the event of collapse or failure, these insurance funds cover your lost funds.
While no institution is entirely immune to collapse, credit unions generally emphasize conservative practices and member-focused operations to offset risks and ensure the safety of member deposits.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.