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What is an NCUA Insurance and How Does It Work?

What is an NCUA Insurance

The collapse of Silicon Valley Bank and Signature Bank has left a sense of dread among consumers. Are you also one of the people who are worried about your bank failing? You can relax for now. Credit union failure rates are quite rare and even if it happens, your deposits are protected if your credit union is backed by the National Credit Union Administration(NCUA). 

Credit Unions are non-profit, member-owned organisations that provide similar services as banks and are safeguarded and maintained by the NCUA. These financial institutions offer financial services with a personal touch, potentially higher investment returns, and lower fees than a traditional bank. If you don’t have an account at a credit union, consider joining one. 

The National Credit Union Administration is a federal agency that regulates credit unions and ensures the money deposited by consumers in their credit union accounts. It is similar to Federal Deposit Insurance Corporation(FDIC), the agency that insures bank deposits. While accounts at credit unions and banks are insured in different ways, both government agencies have similar processes and regulations, and even the same cap on how much of consumer’s deposits are insured. 

Similar to the FDIC, the NCUA insurance limit is $250,000 per person, per bank, and per ownership account. Keep reading ahead to learn more about NCUA insurance and how it works. 

What is the National Credit Union Administration(NCUA)?

The NCUA is a federal agency that regulates and governs the National Credit Union Share Insurance Funds(NCUSIF). It was created by Congress in 1970 to regulate federal credit unions. The agency is backed by the U.S. government and is completely credible and trustworthy. However, the National Credit Union Administration is not funded by the government but by the premiums paid by the credit unions it insures and regulates. 

The National Credit Union Administration insures deposits in the credit unions up to $250,000 per person and per ownership category. Moreover, credit unions regulated by state agencies may also be insured by the NCUA. According to recent data, around 98% of credit unions are NCUA-insured. 

The Federal Deposit Insurance Corporation(FDIC) is a federal agency that insures deposits made in a bank. It serves the same function as the NCUA but for banks. The FDIC regulates banks and manages the Federal Deposit Insurance Fund, which is used to insure deposits up to $250,000 per person and per ownership category at FDIC-insured banks. If your FDIC-insured bank goes under, you won’t lose your insured deposits. 

If you want to determine whether your credit union is insured by the NCUA, you can use the NCUA’s search tool or look for the logo on the credit union’s materials. 

What is NCUA Insurance?

The NCUA insurance is an agreement that you will receive the money you are entitled to from your deposit account in case the credit union collapses. The NCUA insurance limit is $250,000 per person, per institution, and per ownership category. 

One of the NCUA’s responsibilities is managing the National Credit Union Share Insurance Fund(NCUSIF). The NCUSIF guarantees money in credit union accounts backed with the credibility of the U.S. government. 

You might find “federally insured by the NCUA’” on a credit union’s website. This lets you know that your money is insured and is in a safe spot even if the credit union shuts down. 

What is the Role of the NCUA?

The NCUA is primarily responsible for providing multiple services to federally chartered credit unions including- 

  • Insuring deposits made at the credit union. 
  • Providing licenses(charters) for credit unions to operate
  • Monitoring credit unions to ensure they follow applicable regulations and ethical practices. 

Besides that, the NCUA is also responsible for managing the National Credit Union Share Insurance Fund, funded by participating credit unions. This fund is responsible for repaying the credit union members if the credit union shuts down. 

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How Does NCUA Insurance Work?

If a credit union goes under, the National Credit Union Administration is responsible for managing and closing the institution. The NCUA’s Asset Management and Assistance Center liquidates the credit union and its assets and returns funds to the members of the institution. It typically takes four to five days from closure for the funds to be returned. In some cases, the NCUA also uses the liquidated funds to pay off any outstanding loans of the account holder. 

As of 2023, the government requires all credit unions to carry NCUA insurance. Some state-chartered credit unions may opt for private insurance to cover deposits but most opt for coverage through the NCUA. The NCUA insurance is important in keeping the members financially stable in case the credit union shuts down. 

However, outright liquidation where a credit union closes and members get payments to cover their account balances is quite rare. Usually, if a credit union is unable to manage its operations and will not be able to survive, it finds another credit union partner that can take on that institution so the members don’t face any disruptions. 

As mentioned above, the NCUA insures up to $250,000 per depositor, per credit union, per ownership category. In this case, the ownership category refers to the account type- single or joint. Both single and joint accounts are insured up to $250,000. 

Similar to FDIC, NCUA insurance only covers deposit accounts including savings accounts, checking accounts, money market accounts, and certificates of deposits. Some retirement plans and employee benefit plans are also covered under the insurance but count as separate ownership categories. 

Investment losses and contents of the safe deposit boxes are not covered, even at an insured credit union. 

What Accounts are Covered by the NCUA Insurance?

The NCUA insures each credit union account up to $250,000 per person, per ownership category. The following accounts are covered under the NCUA insurance- 

Besides these types of accounts, the NCUA also insures various ownership categories- 

  • Single Accounts
  • Joint Accounts
  • Some Retirement Accounts
  • Revocable Trust Accounts
  • Irrevocable Trust Accounts
  • Employee Benefit Accounts

All accounts in the same ownership category count toward the NCUA insurance limit of $250,000. For example- If you have a savings account with $100,000 as a balance and another money market account with $50,000. In this scenario, all your money will be insured as the total amount is less than $250,000. Any amount above $250,000 will not be insured and will most likely be lost if the credit union shuts down. 

However, there is a way to bypass the $250,000 NCUA insurance limit. You can spread your money across credit unions and ownership categories. For example- the money in your joint account is not calculated along with the money from your individual account. Each joint account holder is also eligible for the $250,000 NCUA coverage. 

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NCUA Insurance Limits and How You Can Get the Most From It?

NCUA insurance limits for credit unions vary for single and joint accounts. While deposits beyond $250,000 aren’t insured, you can bypass that limit by splitting your deposits across different institutions or ownership categories to get NCUA coverage. 

The NCUSIF insures all deposits under $250,000. For example- if X has $150,000 in a savings account and $80,000 in a money market account, they are fully insured by the NCUA as the total is below $250,000. 

In the case of joint account owners, the NCUSIF insures $250,000 for each joint account holder. This insurance is separate from individual ownership accounts. For example- if X and Y own a joint savings account, that account is insured up to $500,000- $250,000 for each account holder. And if X has a separate individual account with $250,000, that amount will still be insured regardless of how much money is in the joint account. With the individual and joint account combined, X will be insured for the maximum amount of $750,000. 

Single-ownership accounts with beneficiaries don’t qualify for joint account insurance. However, the NCUA does offer separate insurance for trust accounts- accounts managed by an individual or firm on behalf of a beneficiary. Each beneficiary named on the trust account qualifies for insurance of $250,000. 

These instruments are not insured by the NCUA Coverage- 

InstitutionSingle AccountsJoint AccountsNCUA Coverage( up to $250,000)
Credit Union 1$100,000 in Savings Account$250,000 in checking and savings accounts$250,000 in joint accounts
$100,000 in individual account
Credit Union 2$100,000 in checking account
$100,000 in a money market account
None$200,000 in individual accounts

Total Funds Insured: $550,000

In the above-mentioned table, the total amount of money insured would be $550,000 as it was spread out over different institutions and ownership categories. 

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NCUA vs FDIC: Comparison

Both the NCUA and FDIC have similar operations. They are both responsible for insuring funds in case the financial institution fails. The NCUA insures credit unions while the FDIC offers federal insurance to bank accounts. Moreover, the credit union's insurance limit is the same as offered by the FDIC. 

Here is a side-by-side comparison of FDIC and NCUA to help you better understand their roles. 

ParametersFDICNCUA
What is It?A federal agency that insures consumer’s deposits in bank accounts. An independent federal agency that insures customer’s deposits in credit unions. 
Caters toBanksCredit Unions
Insurance Coverage$250,000 per person, per institution, per ownership category.$250,000 per person, per institution, per ownership category.
What is Covered in Insurance?Checking accounts.Savings accounts.CDs.Money market accounts.Certain other accounts.Checking accounts.Savings accounts.CDs.Money market accounts.Certain other accounts.
What is Not Covered in Insurance?Mutual funds.Annuities.Treasury securities.Life insurance policies.Stocks.Bonds.Mutual funds.Annuities.Treasury securities.Life insurance policies.Stocks.Bonds.

How to Get Your Money Back If Your Credit Union Shuts Down?

When a credit union shuts down, it enters liquidation and the NCUA takes over its operations. In most cases, if a credit union fails to maintain its operations and is unable to survive on its own, it finds a partner credit union and hands over its accounts. The NCUA will try to sell its deposits and loans to another credit union before shutting down the credit union. If the transfer is successful, the customer’s accounts are simply transferred. 

In rare cases, if the NCUA is unable to complete the transfer, it will send cheques to customers for the insured balance of their deposits, usually within four to five days of closure. If it requires further action to redeem the deposits, the NCUA will notify the members through mail. 

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Credit Unions Not Insured by NCUA

Although the government requires all federally chartered credit unions to carry the NCUA insurance, there are a few exceptions. Some state-chartered credit unions are regulated by the state, not the National Credit Union Administration. They may or may not have federal insurance. If one of these state-chartered credit unions doesn’t carry federal insurance, they will be insured privately and will not be backed by the federal government. 

While some private insurers offer higher limits than the NCUA insurance limit, they are not backed by the federal government and don’t have the full protection of the U.S. government. You can find out if your credit union is insured by the NCUA through the NCUA website’s searchable database. 

However, even if a credit union is insured, doesn’t mean every penny of their deposits is covered under the insurance. The FDIC and the NCUA have a cap of $250,000 per account and per ownership category. 

At the time of the Silicone Valley collapse, the FDIC announced that it would pay back all depositors, even uninsured ones. It is entirely possible that the NCUA will do the same thing in the event of a credit union collapse. However, you can only expect to get the limit allowed by the law to ensure that you are covered. 

Why is Federal Insurance Important?

It is important to get federal insurance because it guarantees that your money is protected no matter what happens. Moreover, credit unions don’t often shut down as the NCUA regularly reviews the operations of federal credit unions. However, in case a credit union goes under, you won’t lose a single penny up to $250,000 if they are insured by the NCUA. 

If the credit union shuts down, the NCUA overtakes its operations and transfers your money to another federally insured credit union. In the event that your account can’t be transferred, the NCUA will mail you a cheque of the money present in your account within four to five days of closure. Either way, you can expect to get your money back in case of a shutdown. 

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Final Words

If your money is deposited in an NCUA-insured credit union, its safety is guaranteed as long as you are within the NCUA guidelines. While the NCUA has a limit of $250,000, it is possible to bypass the limit by distributing your deposits across different credit unions and ownership categories. This way you can ensure that your money is covered despite the amount. 

When it comes to safety, both credit unions and banks are solid options as long as they are insured. However, there are also distinct differences between banks and credit unions that should be considered if you are choosing between the two. 

Lastly, you can find out whether your deposits are insured by searching for your credit union on the NCUA’s credit union locator. 

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Frequently Asked Questions(FAQs)

Q. What is the purpose of the National Credit Union Administration?

Ans. The NCUA was created by Congress in the 1970s with the purpose of insuring deposits at federally insured credit unions, protecting the members who own credit unions, and providing licenses and charters to federal credit unions. Credit unions insured by the NCUA provide insurance for consumer deposits up to $250,000 per person, per institution, and per ownership category.

Q. Who controls the NCUA?

Ans. A three-member Board of Directors oversees the NCUA’s operations by approving budgets, adopting rules and regulations, and setting policies. Each board member is appointed by the President of the United States of America and confirmed by the Senate. The President is also responsible for designating the Chairman of the NCUA Board. As of now, Todd M. Harper is the Chairman of the NCUA Board of Directors. 

Q. What accounts are insured by the NCUA?

Ans. The NCUA insures each credit union account up to $250,000 per person, per ownership category. The following accounts are covered under the NCUA insurance- 

Savings Account
Share Draft (Checking) Accounts
Certificates of Deposits
Money Market Accounts
Individual Retirement Accounts
Employee Benefit Accounts

Besides these types of accounts, the NCUA also insures various ownership categories including Single Accounts, Joint Accounts, Some Retirement Accounts, Revocable Trust Accounts, Irrevocable Trust Accounts, and Employee Benefit Accounts.