Credit Unions: Safe and Sound

by Center for Personal Finance editors

Introduction

In an uncertain economy, one thing you can be certain of is that your money is safe at your credit union. Insurance coverage on your credit union accounts is at least $250,000.

Savings in every federally insured credit union are backed by the National Credit Union Administration (NCUA) with money in a fund maintained by the U.S. Treasury. Federal insurance protects your money at your credit union in share savings, share draft/checking, money market, share certificate, trusts, and retirement accounts.

And your funds in a federally insured credit union can be insured to a level much higher than $250,000. For instance, jointly owned accounts and accounts with named beneficiaries are insured separately, up to at least $250,000 (and in many cases much more), depending on the structure of the accounts. IRAs (individual retirement accounts) and Keogh accounts are also separately insured up to $250,000. The summary boxes that appear throughout this article illustrate coverage limits for various accounts.

Your money is just as safe at your credit union as it is at a federally insured bank. The NCUA's coverage for credit unions is the same as the Federal Deposit Insurance Corporation's (FDIC) coverage for banks. Both funds are backed by the full faith and credit of the U.S. government. And, federal insurance coverage applies separately at each credit union and at each bank where you have your money.

So it's important to understand that, depending on the types of accounts you have in the credit union and whether--and how--you list beneficiaries, you can have more than $1 million in share insurance coverage. These examples show how this works.

Single ownership accounts

All the accounts you own individually in your name in the credit union—whether the funds are in your share draft/checking account, savings account, or certificates—are added together and insured by NCUA up to $250,000. Included in this aggregate

The full faith and credit of the U.S. government stands behind your insured funds.

calculation are all accounts established by others for your benefit (such as a custodial account) and any account you have as a sole proprietorship business (that is, where you haven't set up a corporation or a legal partnership).

Joint ownership accounts

NCUA insures funds in joint ownership accounts—those owned by two or more individuals—separately from funds in single ownership accounts, as long as:

• Co-owners are individuals (corporations or partnerships are not eligible).
• Co-owners have equal withdrawal rights and no dollar withdrawal limits.
• Each co-owner has signed the deposit account signature card.

Unless stated on the deposit account records, each co-owner's share of the account is equal in calculating insurance coverage.

Each individual's interests in all joint accounts at the credit union are added together and insured up to $250,000.

So Susan has up to $250,000 insurance coverage on the funds she owns in her own name and up to an additional $250,000 insurance coverage for the joint accounts she owns with her husband—or any other person.

Revocable trust account—such as payable-on-death, living trust, or testamentary accounts

NCUA separately insures up to $250,000 for each beneficiary on accounts where the depositor indicates that upon his or her death, funds will be owned by one or more beneficiaries. The owner may name any natural person, charitable organization, or nonprofit entity (as defined by the IRS) as a beneficiary to this type of account.

To figure account coverage, each account is insured up to $250,000 per owner for each named beneficiary. Revocable trust accounts with five or more beneficiaries and containing more than $1,250,000 are subject to special coverage calculations, which you should discuss with someone at your credit union.

For deposit insurance purposes, the Coverdell Education Savings Account is treated as an irrevocable trust account. Thus, your Coverdell funds will be added with your other irrevocable trust account funds and insured separately up to $250,000.

The self-directed retirement account

This account category includes IRAs and Keogh accounts. These accounts are insured separately from nonretirement funds, with each type insured up to $250,000 at your credit union.

Funds you own in traditional IRAs and Roth IRAs are added together and insured in the aggregate to

$250,000 at your credit union. A Keogh account is insured separately up to $250,000.

Other safeguards

In addition to federal share insurance, you have other safeguards. First, your credit union operates with a safety net of capital—its undivided earnings and other reserves—that helps weather temporary setbacks. Your credit union also maintains an "allowance for loan losses," which provides an additional cushion to anticipate losses when some members fail to repay loans. And your credit union is examined regularly by federal and/or state regulators to make sure it is engaged in safe and sound operations.

The full faith and credit of the United States government stands behind NCUA and assures that your insured funds will be paid out to you. When you see NCUA's logo (below left) at your credit union, you know you can rest easy.

Published December 21, 2009

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