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When you open an account with a bank insured by the Federal Deposit Insurance Corporation (FDIC) or a credit union insured by the National Credit Union Administration (NCUA), you can feel confident your money is protected up to a certain amount. Both the FDIC and NCUA provide government-backed insurance for financial institutions; however, the FDIC insures bank deposits while the NCUA insures credit union deposits.
|FDIC vs. NCUA|
|Which institutions are insured?||Federally insured banks||Federally insured credit unions|
|What are the coverage limits?||$250,000 per insured bank, per depositor, per account ownership category||$250,000 per insured credit union, per member-owner, per account ownership category|
|What accounts are insured?||Deposit accounts including:||Deposit accounts including:|
|What accounts aren't insured?||Even if purchased through or held with a bank insured by the FDIC, the following accounts are not insured:||Even if sold by a federally insured credit union, the following are not insured:|
What Is the FDIC?
During the Great Depression, many Americans lost their life savings when their banks failed. To guard against this happening again, in 1933 Congress created the FDIC to maintain stability and public confidence in the nation's financial system. The agency oversees the banking industry and insures accounts in federally insured banks and savings associations, backed by the full faith and credit of the U.S. government.
What Is the NCUA?
The NCUA is an independent agency that oversees the National Credit Union Share Insurance Fund (NCUSIF). This federal insurance fund, backed by the U.S. government, insures member savings in federally insured credit unions. Deposits at federally chartered credit unions are automatically insured by the NCUA, but state-chartered credit unions can opt for NCUA insurance too. Some 98% of U.S. credit unions are federally insured. To find out if your credit union is one of them, ask a representative or look for the official NCUA insurance logo in its offices or on its website.
How Does FDIC and NCUA Insurance Work?
Whether you choose a bank or credit union, deposit insurance automatically takes effect as soon as you open an account covered by FDIC or NCUA insurance.
If you have a checking account and a savings account at the same bank, each with a $250,000 balance, you might think your money is fully insured. However, both the type of account and the ownership category affect your coverage. Both FDIC- and NCUA-insured accounts use the following ownership categories:
- Single accounts (owned by one person)
- Joint accounts (owned by two or more people)
- Certain retirement accounts
- Revocable trust accounts
- Irrevocable trust accounts
- Employee benefit plan accounts
All accounts in the same category owned by the same person at the same bank or credit union are added together, and the total is insured up to $250,000.
In practice, this means that if you have a total of $500,000 spread across several checking and savings accounts at the same bank, only $250,000 deposited in single accounts per owner, per institution, is insured. This means that while the balance in your accounts adds up to $500,000, $250,000 of your money at that institution is unprotected.
Suppose these were joint accounts with your spouse, however. Because the money is insured up to $250,000 per owner, you have $500,000 in insurance.
Use the FDIC's Electronic Deposit Insurance Estimator or the NCUA's Share Insurance Estimator to see if your accounts are fully insured. If not, you can protect your money by opening accounts at different banks or credit unions and moving some money there. Keep your ownership categories at each bank or credit union at $250,000 or less to make sure you're fully protected.
Is the FDIC or NCUA Insurance Better?
Both FDIC and NCUA insurance offer essentially the same type and amount of coverage, so the real choice is between a credit union and a bank. Neither is better; it's simply a matter of which suits your financial needs. Unlike banks, credit unions are member-owned not-for-profit organizations; you must be a member to use their services.
Compared with credit unions, banks typically:
- Offer a wider selection of financial products
- Have more locations and ATMs
- Feature robust mobile and online apps
On the downside, banks generally charge higher fees, return lower interest rates on deposit accounts and have stricter lending criteria.
Compared with banks, credit unions usually:
- Offer more personalized service
- Charge lower interest rates on loans and credit cards
- Return higher interest on savings and deposit accounts
- Have minimal fees
- Have more forgiving lending criteria
As for drawbacks, most credit unions are regional, have few physical locations and may lack or have less-than-stellar options for digital and mobile banking.
Protect Your Finances
Banks and credit unions don't report your account balances or transactions to the major credit bureaus, so this information doesn't appear on your credit report. If overdrafts, bounced checks or fees and penalties go unpaid, however, the account can be sent to collections. Collection accounts appear on your credit report and can lower your credit score. To protect your credit score, check your credit report regularly and consider signing up for free credit monitoring from Experian.
Misuse of credit union or bank accounts may also be reported to ChexSystems, which is an agency used by financial institutions to assess account holders.