Both the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) insure financial institutions with the backing of the government. But while the FDIC provides insurance for bank deposits, the NCUA insures credit union deposits. Here are the key differences.
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What Is the FDIC?
The FDIC was established by the Banking Act in 1933 in an effort to restore public confidence in U.S. banks during the Great Depression. Now, almost a century later, its mission is still to “promote confidence and stability in the nation’s financial system.” And since its founding, the FDIC says that “no depositor has lost a penny of FDIC-insured funds.”
This federal agency insures deposits up to $250,000 for each depositor in member banks.
The insurance covers both checking and savings accounts, money market deposit accounts, certificates of deposit (CDs) and prepaid cards that meet FDIC requirements, as well as revocable and irrevocable trust accounts.
Additionally, the deposit insurance also covers “retirement accounts in which plan participants have the right to direct how the money is invested.” These include individual retirement accounts (IRAs), self-directed defined contribution plans like 401(k)s or profit-sharing plans, self-directed Keogh plan accounts and Section 457 deferred compensation plan accounts (both self-directed or not).
The FDIC does not cover investment products that are not deposits. These include stocks, bonds, mutual funds, crypto assets, life insurance policies, annuities, municipal securities, safe deposit boxes and U.S. Treasury bills, bonds or notes.
What Is the NCUA?
The NCUA is another federal agency that was created in 1970. Its mission is to protect “the system of cooperative credit and its member-owners through effective chartering, supervision, regulation, and insurance.”
Like the FDIC’s deposit insurance fund, the NCUA’s insurance fund is backed by the U.S. government and covers “up to $250,000 of federal share insurance to millions of account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions.”
Specifically, the insurance fund covers single ownership accounts that include “regular shares, share drafts (similar to checking), money market accounts, and share certificates.” It also covers traditional and Roth IRAs up to $250,000 in the aggregate at each credit union.
The NCUA insurance became permanent in 2010 through the Dodd-Frank Wall Street Reform and Consumer Protection Act.
FDIC vs. NCUA: Which Insurance Is Better?
Both funds offer similar coverage, but your choice depends on which type of financial institution serves your needs better: a bank or a credit union.
When compared with credit unions, banks can offer you a wider selection of financial products, more ATMs and greater online access. Though you may also face higher fees, lower interest rates on deposit accounts and strict lending rules.
Credit unions, on the other hand, can offer members more personalized services with lower interest rates for credit cards and loans, and higher interest on savings and deposit accounts. These financial institutions can also have lower fees and more lenient lending rules, but they are mostly regionally-based with fewer brick-and-mortar branches and limited online banking.
Bottom Line
Whether you put your money in a bank or a credit union, FDIC and NCUA funds will cover up to $250,000 per depositor in either financial institution. Your choice between one fund or the other will be based on which serves your financial needs best – do you prefer a bank or a credit union?
Banking Tips for Beginners
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