September 23rd, 2009
I was reviewing our logs and noticed that someone had come to Jumbo CDs, looking for the answer to, “What is the difference between FDIC and NCUA Insured?”
Boy, did I feel silly because I didn’t actually have the answer on our site. After all, we help people invest in federally insured banks and credit unions. Of all places, the answer should be able to be found here. And now it is.
And the answer is, there is really no difference as far as federal protection. Both cover your bank accounts (CDs, Savings, Checking, Money-Market) up to $250,000
through 12/31/13. If the Gov’t doesn’t extend that it will revert back to $100,000. Both cover your IRA accounts assuming they are in a bank account and not a securities account up to $250,000. That was a permanent change made in 2004. IRAs are insured separately then your regular bank accounts.
Both are federally guaranteed. The FDIC oversees and insures banks and the NCUA oversees and insures credit unions. However, the NCUA is currently in far healthier shape. Not that I believe the FDIC won’t be able to meet its obligations, you just don’t hear about the NCUA having to bail out too many credit unions. [Update 2011: Well the NCUA had to bailout a bunch of corporate credit unions. However, they didn’t take the funds from the Gov’t, they took it from their member credit unions.
The biggest difference is credit unions overall, are in better shape then banks. We have dealt with countless bank closures the last two years. There has only been a handful of credit union closures. And the reason is the foundational difference between a credit union and a bank. At a credit union, everyone is a member and has one vote, no matter how big their deposits are. The credit union exists to extend the lowest loan rates and highest savings rates it can to its members. Credit Unions are non-profit organizations. Because of their non-profit status, they are limited in what they can invest in. Most of their investments are in boring things like CDs ( :O) ), Gov’t bonds, and treasuries. They are limited in who and what they can lend to. Both of these drastically lower the risk of having problems.
Now, I don’t want my banker friends to get mad at me. Usually, small community banks operate much like credit unions in that they put the people first. However, a bank is a for profit organization. Usually, a small group of investors has put their capital into the bank and they want a return on their money. The pressure for higher returns leads banks to make riskier decisions. And over the last two years we’ve seen the result of that.
So when it comes down to it, there is no difference in your insurance protection between FDIC and NCUA insured accounts. If either a bank or credit union fails that is federally insured, you will get your money back. Often times the best certificate of deposit rates are found with credit unions.
I hope that helps. Here is a funny video that you might enjoy on the subject.
-- By +Chris Duncan