NCUA: What it is and how it keeps your money at credit unions safe

Key takeaways

• The National Credit Union Administration (NCUA) is the government agency that insures deposits at member credit unions.
• When your money is in a share account with a federally insured credit union, it's protected by up to $250,000 per depositor, per federally insured credit union, per ownership category.

For those who belong to a credit union, the National Credit Union Administration (NCUA) is the government agency that insures deposits at member credit unions. The NCUA's counterpart to banks is the Federal Deposit Insurance Corp. (FDIC).

While accounts at credit unions and banks are insured differently, both federal agencies have similar rules and processes, and even have the same cap on how much of a depositor's funds are insured. If you aren't sure what the NCUA does, here's a primer, and how the agency affects your money.

What is NCUA insurance?

One of the NCUA's responsibilities is managing the National Credit Union Share Insurance Fund (NCUSIF). It's the NCUSIF that guarantees money in a credit union's account is backed with the full faith and credit of the U.S. government.

For all federal credit unions and most state-chartered credit unions, the NCUSIF provides up to $250,000 in coverage for each single ownership account.

How does NCUA insurance work?

When a credit union fails, the NCUA is responsible for managing and closing the institution. The NCUA's Asset Management and Assistance Center liquidates the credit union and returns funds from accounts to its members. The funds are typically returned within five days of closure. Sometimes, the NCUA may use the liquidated funds to pay off any outstanding loans of the account holder.

It's unlikely that a credit union will need to be liquidated by the NCUA. That noted, NCUA insurance is crucial in keeping depositors afloat when a credit union fails.

Outright liquidations of credit unions, in which the institution is closed for good and members get payments in the mail to cover their share-account balances, are fairly rare, says Tom Glatt, a credit union strategy consultant and founder of Glatt Consulting Group.

"Usually what the NCUA tries to do is, if the credit union has a fair number of problems and is not going to survive on its own, they'll try to find another credit union partner that can take on that institution so that the members themselves don't see any disruption," he says.

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.

What are the limits on NCUA insurance and how can you get the most from it?

Limits on federal insurance for credit unions vary for single and joint accounts.

The NCUSIF covers up to $250,000 of the total balance of individuals' credit union accounts. For example, if Fred has $150,000 in a savings account and $100,000 in a money market account at the same credit union, the total amount of his deposits doesn't exceed $250,000, so he's fully insured by the NCUA.

For jointly owned accounts, the NCUSIF insures an additional $250,000 for each account holder. Joint account insurance is separate from insurance for single ownership accounts. For example, if Fred is married to Mary and they jointly own a savings account, that savings account is insured for up to $500,000 -- which consists of $250,000 for each account holder. Because Fred has a total of $250,000 in his single ownership accounts, he'll still be insured that amount regardless of how much money is in the joint savings account. With the single ownership accounts and the joint account combined, Fred has up to $500,000 that's federally insured.

Single ownership accounts with beneficiaries don't qualify for joint account insurance. The NCUA does, however, offer separate insurance for trust accounts, which are accounts managed by a designated person or firm on behalf of one or more beneficiaries. Each beneficiary named on such accounts may qualify for an additional $250,000 in insurance coverage.

The NCUA doesn't insure money invested in:

• Mutual funds
• Stocks
• Bonds
• Life insurance policies
• Annuities

The NCUA website provides a share insurance estimator to help consumers determine whether all of their assets are insured.

NCUA vs. FDIC

Both the NCUA and FDIC are responsible for insuring funds in the event that a financial institution fails. But are credit unions FDIC insured?

Credit unions aren't insured by the FDIC because they are insured by the NCUA.

The NCUA insures credit union accounts, while the FDIC provides insurance for bank accounts. They both come with the same limits on insurance coverage. A decision about whether to store money in a credit union or bank shouldn't be affected by which federal agency insures the institution.

Credit unions not insured by NCUA

Though all federal and most state-chartered credit unions have coverage from the NCUA, there are a few exceptions. State-chartered credit unions are regulated by the state, as opposed to the NCUA, and may or may not have federal insurance. If a state-chartered credit union doesn't have federal insurance, it will be privately insured and therefore not backed by the federal government.

Some private insurers may offer higher amounts of coverage than the NCUA, though this coverage doesn't have the full protection of the U.S. government. Find out if a credit union is federally insured through the NCUA website's searchable database.

Even if a credit union is insured, that doesn't mean every penny of its deposits is covered. As with the FDIC, the NCUA has a cap of $250,000 per depositor, per account. Thus, it's entirely possible for an insured credit union to have sizable deposits that aren't covered.

In the wake of the Silicon Valley Bank collapse in March 2023, the FDIC announced it would pay back all depositors, insured or not. It's possible that in the event of a similar credit union collapse, the NCUA would do the same thing. However, you should assume you'll only get the limit allowed by law to ensure you're covered. Because there may be different factors included in the collapse of a bank versus a credit union, the NCUA may not take the same course of action.

Is money safer in a credit union or a bank?

When a credit union is federally insured by the NCUA, it's just as safe as a bank that's insured by the FDIC. If both your credit union and bank have a longstanding relationship with their respective federal insurance agencies, then there's little to doubt the safety of your money. Both the credit union and the bank are equally safe institutions for your money.

Bottom line

If your money is in a federally insured credit union share account, its safety in the event of a closure is relatively guaranteed so long as you're within NCUA guidelines.

The $250,000 limit on NCUA insurance may affect some members, but even then, it's possible to distribute funds so that they're entirely insured, such as by having money in a joint ownership account or by keeping some money in a bank account.