When comparing credit unions you might notice that some are referred to as “federal” credit unions and others are not. Both types of credit unions offer the same basic banking services — like checking and savings accounts, loans and other financial tools. The important distinction between federal credit unions and a non-federal credit unions is how they’re insured and regulated.
Credit Unions vs. Banks
Credit unions offer the same basic services as banks, including offering checking accounts, savings accounts and loans. A volunteer board of directors is elected by members to manage a credit union. Profits made by credit unions are returned to members in the form of reduced fees, higher savings rates and lower loan rates.
Unlike banks, which are owned by investors, credit unions are not-for-profit organizations that are owned and controlled by account holders, who are also called depositors or members.
A board of directors, made up of elected volunteer members, manage the credit union. Each account holder — regardless of how much money he has in his accounts — gets a vote on board members. This kind of democracy ensures that everyone’s voice is heard.
When a credit union turns a profit, that money is transferred back to account holders or members through a wide range of benefits, like reduced fees, higher savings rates and lower loan rates.
For about $5 to $25 — that’s one par value share — anyone can join a credit union. There are several ways to become eligible for credit union membership, including:
- Through your employer
- Based on where you live
- Through a family member
- Through a group like a school, labor union or other association
What is a credit union?
Credit unions that are not insured by the federal government through the National Credit Union Share Insurance Fund are insured by private insurers. Thus, deposits at non-federal credit unions are covered by non-federal share insurance.
It is important to note that some deposits at state-chartered credit unions are insured by private insurers. These private insurers provide non-federal share deposit insurance coverage of deposits that are not backed by the full faith and credit of the United States government.
You can easily identify a non-federal CU in a couple of ways:
- The absence of the word “federal” in the CU name
- Headquartered outside of Arkansas, Delaware, South Dakota, Wyoming or the District of Columbia
What is a federal credit union?
The main difference between a federal credit union and a non-federal CU is how they’re insured. Otherwise, both FCUs and CUs offer the same basic banking services like checking and savings accounts, loans and other financial tools. Also, CUs with headquarters in Arkansas, Delaware, South Dakota, Wyoming or the District of Columbia, are FCUs.
FCUs are insured through the National Credit Union Share Insurance Fund. The NCUSIF is administered by the National Credit Union Administration, an independent agency. The fund is a federal insurance fund backed by the U.S. government. Like the insurance provided by the Federal Deposit Insurance Corporation, NCUSIF insurance covers deposits of up to $250,000 per individual investor.
Congress created the NCUSIF in 1970 to protect deposits at CUs. Today, about 98 percent of all credit unions in the United States are federally insured. In 1970, the NCUA became an independent federal agency.
To determine whether or not a CU is federally insured, simply check its place of business or website for the official NCUA insurance sign. Every FCU is required to display these signs at teller stations, the place where deposits are made and at all branches. Furthermore, an FCU is required to display this sign on its website and any other place where it receives deposits or opens accounts.
A CU is not allowed to discontinue its federal insurance without first notifying members.
Know the Differences to Choose the Right Credit Union for You
If having your money insured by the U.S. government rather than a private insurer is important to you, you will want to choose a FCU. Because most CUs are federally insured, deciding on which CU to go with might come down to features the CU offers. Details to consider include ATM charges, access to drive-through banking, and the availability of loans and investment or savings products. You might also want to use a CU that offers brick-and-mortar branches.