Is a Credit Union Safe: Yes! And Here’s Why…

You may have heard dire news reports of bank failures over the last few months. Understandably this domino of bank collapses might be a cause for concern when you think about your own deposits and investments. Is there any chance your financial institution might be next? What even lead to these failures? If big-name banks can fail so easily, are credit unions even safe?

Go ahead – take a deep breath and relax – we have good news: your money is extremely safe with a credit union.

WHY HAVE BANKS BEEN COLLAPSING?

To understand why your own investments are safe, it’s important to look at what happened over the last few months that sparked this crisis.

NARROW CLIENT FOCUS

One of the main issues is the niche clientele that these banks served. Each courted vastly wealthy individuals (often from the tech sector) who were enticed to make enormous deposits. A significant chunk of those billions of dollars in deposits went into bonds and loans, with the assumption being that interest rates would remain low. That was not the case. The Federal Reserve has been ratcheting up the interest rate in order to address inflation, which caused those bonds and loans to sink in value. But that’s just the start of the problem

UNINSURED DEPOSITS

While the Federal Deposit Insurance Corporation (FDIC) protects $250,000 of deposits at banks it insures, many of the customers at these failed institutions had deposits well beyond this limit. Uninsured deposit holders (or really any customers) can pull their money out of a bank if they suspect it is in financial trouble. When this happens, the rapid loss of those available funds snowballs the situation and causes a total collapse.

ARE CREDIT UNIONS SAFE?

The circumstances leading up to the recent bank failures were notably specific to those institutions. The situation you can expect to experience at a credit union is quite different.

DEPOSITS AT CREDIT UNIONS ARE OFTEN INSURED

The failures we have seen in recent months are highly unlikely at a credit union. Credit unions are similarly insured up to $250,000 by either the National Credit Union Administration or private organizations like American Share Insurance (ASI), rather than the FDIC. This insurance covers each, individual account and is typically more than sufficient for most members.

Without the substantial risk to deposited funds, credit unions don’t face the same likelihood of mass panic withdrawals that led to the recent bank failures. For those who do exceed the limit, financial advisors recommend placing the overage in another financial institution that also insures their deposits.

MEMBERS OVER PROFITS

Credit unions have a community focus and serve members with a wide variety of needs. Diversity of financial journeys requires various products and services are offered in order to meet the many needs of members. The breadth of service credit unions offer affords them resilience. A key element of the recent failures was a narrow focus on particular clientele, mostly from a single industry.

Further, a crucial distinction between credit unions and banks is that credit unions are dedicated to the well-being of their members, as opposed to bank investors who focus on maximizing profit. Credit union leadership is member-focused and often subject to more stringent governmental oversight than banks, making the safety of your financial future a priority. The security of your money and stability against market disturbances represents only a few of the reasons that nearly one-third of the United States population has membership in a credit union.

…and that is a bit of very good news! Lingering questions about your savings? We’re here to help! Swing by any branch location to speak with a teammate today.

Posted In: Tips For Managing Finances