What’s the Difference Between a Credit Union and a Federal Credit Union?

Learn why some credit unions are federal and some aren't.

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 non-federal credit unions — aka state-chartered credit unions — is how they’re insured and regulated: Federal credit unions are insured by the National Credit Union Share Insurance Fund; non-federal credit unions are not insured by the NCUSIF.

What Is a State-Chartered Credit Union?

Credit unions that are not insured by the U.S. government through the NCUSIF are insured by private insurers. Thus, deposits at non-federal credit unions are covered by non-federal share insurance.

Some deposits at state-chartered credit unions are insured by private insurers, which provide non-federal share deposit insurance coverage of deposits that are not backed by the U.S. government. You can contact a credit union’s customer service to inquire about its insurer if it’s not federally insured.

You can easily identify a non-federal credit union — versus a federal credit union — in a couple of ways:

  • The absence of the word “federal” in the credit union name
  • Headquartered outside of Arkansas, Delaware, South Dakota, Wyoming or the District of Columbia

Check Out: Different Types of Credit Unions

What Is a Federal Credit Union?

The main difference between federally chartered credit unions and non-federal credit unions is how they’re insured. Otherwise, both federal credit unions and credit unions offer the same basic banking services like checking and savings accounts, loans and other financial tools.

Federal credit unions are insured by 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 FDIC, NCUSIF insurance covers deposits of up to $250,000 per individual investor.

Congress created the NCUSIF in 1970 to protect deposits at credit unions. Today, about 98 percent of all credit unions in the U.S. are federally insured.  A credit union is not allowed to discontinue its federal insurance without first notifying members.

Here’s how you’ll know if a credit union is federally insured:

  • It has “federal” in the name.
  • It’s headquartered in Arkansas, Delaware, South Dakota, Wyoming or the District of Columbia.
  • Its website and place of business — at teller stations, anywhere it receives deposits or opens accounts, and at all branches — have the official NCUA insurance sign.

Credit Union Eligibility Requirements

For credit union rates of about $5 to $25 — that’s one par value share — almost anyone can join a credit union. Eligibility requirements vary by credit union, but in general, you can become eligible for credit union membership in a few different ways, including:

  • Through your employer or industry
  • Based on where you live
  • Through a family member
  • Through a group like a school, church or other association

Credit Unions vs. Banks

Credit unions differ from banks in a few key ways. Unlike the way banks are run, 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.

Banks are owned by investors, whereas credit unions are not-for-profit organizations known. Credit unions are considered to put members first because they’re owned and controlled by account holders, who are also called depositors or members. 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.

Additionally, when you put your money in a bank, it’s insured by the FDIC. When you put your money in a credit union, it might be insured by the NCUA or a private insurer.

Learn More: What Is the Difference Between Banks and Credit Unions?

How 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’ll want to choose a federal credit union. Because most credit unions are federally insured, deciding on which credit union to go with might come down to features the credit union offers. Details to consider include credit union ATM charges, access to online and mobile banking and the availability of loans and investment or savings products. You might also want to use a credit union that offers brick-and-mortar branches.

Keep Reading: Advantages and Disadvantages of Credit Unions