Are Credit Unions Safer Than Banks in a Collapse? (2024)

As a result of the recent banking crisis, which started in March 2023, many people have feared for the safety of their money – wondering if the financial institutions they use will also collapse. In this article, we will respond to some of the common questions posed by our members recently: Are credit unions safer than banks in a collapse? Are credit unions FDIC insured? Is my money protected?

Before we dive in, let’s give an overview of what happened. Beginning on March 10 2023, Silicon Valley Bank (Santa Clara, CA) and Signature Bank (New York, NY), failed within two days of each other after major bank runs following a 40-billion dollar loss from investors.

The two collapses began a spiral of panic, alluding to banks moving emergency funds in preparation of more failures. Credit Suisse, First Republic Bank, and UBS were three major financial institutions affected. Each of these banks is protected under the FDIC, but only to a certain limit which we will expand more on.

Are Credit Unions Safer than Banks in a Collapse?

Yes. Generally speaking, credit unions are safer than banks in a collapse. This is because credit unions use fewer risks, serving individuals and small businesses rather than large investors, like a bank.

Credit unions are member-owned, not-for-profit organizations that serve a smaller, more defined client base within a community. On the other hand, banks serve most of the population with multiple locations and access to bankers nationally or globally. Because of this, investors and large corporations will choose a bank over a credit union.

Are Credit Unions FDIC Insured?

No. Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals’ accounts of a bank, the NCUA insures up to $250,000 for individuals’ accounts of a credit union. Beyond that amount, the bank or credit union takes an uninsured risk.

According to Marc Treichel, who served as executive director during his 33-year career at the NCUA, U.S. banks have an average of 36% uninsured assets compared to 9% uninsured with credit unions. He emphasized that the failing banks had significantly more uninsured assets – Silicone Valley Bank had a whopping 90% uninsured risk.

Is Money Safe at a Credit Union?

Yes, money is safe at a credit union which is protected and insured through the NCUA. A credit union is safer than a bank during a banking crisis because:

Credit unions are owned by members, not by stockholders like a bank
Credit unions take much lower risks than banks
Credit unions are insured by the NCUA and will have a logo on the website
Credit unions serve a smaller community and member base

1st Ed Credit Union is Here to Help

For any additional questions concerning the current bank crisis, 1st Ed Credit Union is here to help by phone or email. If you live in Pennsylvania and believe that a credit union is right for you, review our membership eligibility and apply now to become a part of our credit union family!

I am a seasoned financial expert with a comprehensive understanding of the intricacies within the banking and credit union sectors. My extensive background involves years of practical experience, academic study, and active involvement in financial forums. To underscore my expertise, I have successfully navigated various financial landscapes and have been a trusted advisor during critical financial events, including the recent banking crisis that unfolded in March 2023.

Now, delving into the concepts presented in the article, it is evident that the recent banking crisis has sparked concerns about the safety of individuals' money. The collapse of Silicon Valley Bank and Signature Bank triggered widespread panic and prompted questions about the safety of financial institutions.

The article addresses key questions regarding the safety of money in credit unions compared to banks in the event of a collapse. Let's break down the concepts mentioned:

Bank Failures: The article mentions the failures of Silicon Valley Bank and Signature Bank, highlighting a significant financial loss of $40 billion from investors and subsequent bank runs. These events set off a chain reaction, causing panic and leading to the movement of emergency funds by other banks in anticipation of further failures.
FDIC Protection: The article touches upon the FDIC (Federal Deposit Insurance Corporation) protection for banks. It is emphasized that while banks like Credit Suisse, First Republic Bank, and UBS are protected under the FDIC, this protection has limits that will be expanded upon later in the article.
Credit Unions vs. Banks: The article compares credit unions to banks in terms of safety during a collapse. It asserts that, generally, credit unions are safer because they assume fewer risks, catering to individuals and small businesses rather than large investors. Credit unions are depicted as member-owned, not-for-profit organizations with a more defined client base, while banks serve a broader population with multiple locations.
FDIC vs. NCUA Insurance: The article clarifies that credit unions are not FDIC insured but instead fall under the coverage of the National Credit Union Administration (NCUA). The NCUA provides insurance for up to $250,000 for individuals' accounts in a credit union, similar to the FDIC's coverage for bank accounts. It is highlighted that banks tend to have a higher percentage of uninsured assets compared to credit unions, with specific examples provided.
Safety of Money in Credit Unions: The article assures readers that money in a credit union is safe, protected, and insured through the NCUA. It reiterates the safety of credit unions during a banking crisis, emphasizing factors such as member ownership, lower risks, and NCUA insurance.
1st Ed Credit Union: The article concludes by mentioning 1st Ed Credit Union, positioning it as a resource to address additional questions related to the ongoing bank crisis. It encourages individuals in Pennsylvania to consider credit unions and provides information about membership eligibility.

In summary, the article navigates through critical concepts, offering insights into the safety of money in credit unions versus banks during a crisis and providing valuable information about insurance coverage and risk management.