Are Credit Unions Safer Than Banks in a Collapse? (2024)

Are Credit Unions Safer Than Banks in a Collapse? (1)

As a result of the recent banking crisis, which started in March 2023, many people have feared for the safety of their money – wondering if the financial institutions they use will also collapse. In this article, we will respond to some of the common questions posed by our members recently: Are credit unions safer than banks in a collapse? Are credit unions FDIC insured? Is my money protected?

Before we dive in, let’s give an overview of what happened. Beginning on March 10 2023, Silicon Valley Bank (Santa Clara, CA) and Signature Bank (New York, NY), failed within two days of each other after major bank runs following a 40-billion dollar loss from investors.

The two collapses began a spiral of panic, alluding to banks moving emergency funds in preparation of more failures. Credit Suisse, First Republic Bank, and UBS were three major financial institutions affected. Each of these banks is protected under the FDIC, but only to a certain limit which we will expand more on.

Now, we will take a closer look at common questions regarding credit unions, and how they compare to banks regarding risk exposure, insurance, and safety.

Are Credit Unions Safer than Banks in a Collapse?

Yes. Generally speaking, credit unions are safer than banks in a collapse. This is because credit unions use fewer risks, serving individuals and small businesses rather than large investors, like a bank.

Credit unions are member-owned, not-for-profit organizations that serve a smaller, more defined client base within a community. On the other hand, banks serve most of the population with multiple locations and access to bankers nationally or globally. Because of this, investors and large corporations will choose a bank over a credit union.

Are Credit Unions FDIC Insured?

No. Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals’ accounts of a bank, the NCUA insures up to $250,000 for individuals’ accounts of a credit union. Beyond that amount, the bank or credit union takes an uninsured risk.

According to Marc Treichel, who served as executive director during his 33-year career at the NCUA, U.S. banks have an average of 36% uninsured assets compared to 9% uninsured with credit unions. He emphasized that the failing banks had significantly more uninsured assets – Silicone Valley Bank had a whopping 90% uninsured risk.

Is Money Safe at a Credit Union?

Yes, money is safe at a credit union which is protected and insured through the NCUA. A credit union is safer than a bank during a banking crisis because:

  • Credit unions are owned by members, not by stockholders like a bank
  • Credit unions take much lower risks than banks
  • Credit unions are insured by the NCUA and will have a logo on the website
  • Credit unions serve a smaller community and member base

1st Ed Credit Union is Here to Help

For any additional questions concerning the current bank crisis, 1st Ed Credit Union is here to help by phone or email. If you live in Pennsylvania and believe that a credit union is right for you, review our membership eligibility and apply now to become a part of our credit union family!

Are Credit Unions Safer Than Banks in a Collapse? (2024)

FAQs

Are Credit Unions Safer Than Banks in a Collapse? ›

Yes. Generally speaking, credit unions are safer than banks in a collapse. This is because credit unions use fewer risks, serving individuals and small businesses rather than large investors, like a bank.

Are credit unions safer from failure than banks? ›

However, because credit unions serve mostly individuals and small businesses (rather than large investors) and are known to take fewer risks, credit unions are generally viewed as safer than banks in the event of a collapse.

Are credit unions safer than banks during a recession? ›

bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.

Are credit unions at risk of collapse? ›

Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.

Which is safer, FDIC or NCUA? ›

One of the only differences between NCUA and FDIC coverage is that the FDIC will also insure cashier's checks and money orders. Otherwise, banks and credit unions are equally protected, and your deposit accounts are safe with either option.

How safe is my money in a credit union? ›

Which is Safer, a Bank or a Credit Union? As long as you are banking at a federally insured institution, whether it is a credit union insured by the NCUA or a bank by the FDIC, your money is equally safe. Credit unions are owned by the members—your savings account at a credit union is a share of ownership.

What happens to credit unions when banks collapse? ›

If your money is at a credit union, it is similarly protected by the NCUA, with the same limits. This can provide peace of mind, no matter what type of institution you prefer for your money.

Will credit unions survive the bank crash? ›

Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals' accounts of a bank, the NCUA insures up to $250,000 for individuals' accounts of a credit union. Beyond that amount, the bank or credit union takes an uninsured risk.

Why do banks not like credit unions? ›

First, bankers believe it is unfair that credit unions are exempt from federal taxation while the taxes that banks pay represent a significant fraction of their earnings—33 percent last year. Second, bankers believe that credit unions have been allowed to expand far beyond their original purpose.

What are disadvantages of banking with credit unions? ›

Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass. May offer fewer products and services.

Will credit unions fail if banks fail? ›

Some credit unions are federally insured by the National Credit Union Administration (NCUA) in the United States, and others are privately insured. This provides deposit insurance similar to the Federal Deposit Insurance Corporation (FDIC) coverage offered by banks.

Should I be worried about credit unions? ›

Money held in credit union accounts is insured through the National Credit Union Administration (NCUA). Many types of accounts are covered by insurance such as checking, savings, certificates of deposit, money market accounts, and others.

Are US credit unions in trouble? ›

(FDIC) bank failures from 2021 up until the March 10 closure of Silicon Valley Bank. Notably, there were no credit union failures directly following the collapse of Silicon Valley Bank. “The credit union system remains well-capitalized and on a solid footing,” said NCUA Chairman Todd Harper in a statement on March 13.

Is my money safe with NCUA? ›

Accounts at credit unions backed by the NCUA are automatically insured, and members don't need to take any extra steps to ensure that their money is protected.

Are joint accounts NCUA insured to $500,000? ›

The NCUSIF provides each joint account holder with $250,000 coverage for their aggregate interests at each federally insured credit union. For example, a two person joint account with no beneficiaries has $500,000 in coverage.

Who are most credit unions insured by? ›

Credit unions have their own insurance fund, run by the National Credit Union Administration (NCUA). The National Credit Union Administration is a US government agency that regulates and supervises credit unions.

What is the failure rate of credit unions compared to banks? ›

Though their timing was not always the same, over the 1980- 2016 period failures of credit unions were about the same number as of banks and their overall failure rates were remarkably similar (0.44 percent and 0.48 percent).

What is the downside of banking with a credit union? ›

Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.

Can the government take your money from a credit union? ›

Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circumstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.

Why are credit unions so safer? ›

Credit unions are backed by the National Credit Union Share Insurance Fund (NCUSIF), which is equivalent to the Federal Deposit Insurance Corporation (FDIC) for banks. This safety net guarantees your funds, typically up to $250,000 per depositor, should any unexpected turbulence occur.

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