he recent meltdown of Asian financial markets is a reminder that economic booms, such as the one currently buoying U.S. investors, suddenly can go bust. But even if the stock market takes a dive, rest assured thereís a place where hard-earned dollars have a disaster-proof safety net: your credit union.
Since 1970, when Congress established the National Credit Union Share Insurance Fund (NCUSIF), the majority of credit union membersí deposits, or shares, have been insured for up to $100,000. You donít pay directly for your deposit insurance--your credit union absorbs the cost, based on the amount members hold in insured accounts. Not a penny of insured deposits ever has been lost, and no tax dollars ever have gone into the credit union insurance fund.
The National Credit Union Administration (NCUA), an independent government agency, administers the fund under direction of a presidentially appointed, three-member board. In its role as the federal governmentís credit union regulator, NCUA charters, supervises, and examines federal credit unions. Most state-chartered credit unions use NCUSIF coverage, as well.
The answers to the following questions will help you better understand the fund, your deposit insurance rights, and the safety and soundness of your credit union.
directly pay for their
|A separate regulator
and insurance fund
ensures credit union
|Why arenít credit unions insured by the Federal Deposit Insurance Corp. (FDIC), like banks and thrifts?|
When Congress established a separate credit union regulator and deposit insurance fund, it took into account the unique credit union mission to provide credit to "people of small means." It also guaranteed that credit union members would have the same government-backed $100,000 coverage as FDIC-insured deposits.
NCUA helps ensure the "credit union difference." Your not-for-profit credit union is a member-owned institution, overseen by an unpaid volunteer board that you and other members elect. Banks and thrifts, on the other hand, operate to make a profit for their stockholders/owners, and they pay their boards of directors.
Credit unions focus on consumer products and services--various savings accounts, consumer loans, and, occasionally, small-business loans. Commercial banks are geared toward serving corporate borrowers and depositors with high-balance accounts. Credit unions donít have the financial resources nor the regulatory authority to engage in some of the kinds of investing common in the banking world. That means NCUSIF isn't exposed to those kinds of risks, and it only backs the accounts of its members.
|How healthy is the NCUSIF?
Federally insured credit unions must maintain a 1% deposit--based on their insured deposits--in the insurance fund. The NCUA Board also has the right to levy premiums, if necessary, to cover expenses. Thus, the credit union fund has safeguards to maintain its healthy condition.
The NCUSIF is a strong, well-capitalized fund. While deposit-insurance funds historically aim for a 1% to 1.25% ratio of equity to insured savings ($1 to $1.25 per $100 of insured deposits), NCUSIFís equity has ranged from 1.23% to 1.3%. In 1997, the fund rose to 1.32%. Because Congress mandates that the fundís operating level not exceed 1.3%, NCUA returned the difference, about $108 million, to all federally insured credit unions. Itís the third consecutive year that credit unions received a cash dividend for their 1% deposit.
| Credit unionsí|
If my credit union ever liquidated, how would I receive funds representing my deposits?
NCUSIF-insured credit unions must abide by high standards of safety and soundness, undergoing regular federal and/or state examinations. In the unlikely event of a credit union failure and liquidation, NCUA would mail you your deposits (less any amount due on outstanding loans), up to the insurance limit. NCUA usually mails checks several days after it places a credit union into liquidation. In some cases, the NCUA liquidation team gives checks directly to members at the credit union.
|Does every credit union provide NCUSIF share insurance protection?
All federally chartered credit unions must have federal deposit insurance. State-chartered credit unions that meet NCUA requirements also may provide federal deposit insurance. Federally insured credit unions must indicate that theyíre NCUSIF-insured in their advertising and post the official NCUSIF insurance sign in their offices. Of some 11,700 U.S. credit unions, 11,328 were federally insured as of June 1997. These included 7,069 federally chartered and 4,259 state-chartered institutions, representing 70.5 million members.
State-chartered credit unions may opt to provide coverage through other private insurance or guaranty corporations. If your credit union is privately insured, contact a member services representative for more information about your deposit insurance.
|I have several accounts in my name at my credit union. Does NCUA insure each for $100,000?
Typically, all deposits in your individual accounts are added together and protected up to the $100,000 limit. This includes regular savings, certificates, and share draft/checking accounts. Individual Retirement Accounts (IRAs), Keogh, and Deferred Compensation accounts are insured separately from other accounts in your name. So, if you had a savings account and IRA at the same credit union, each would be insured up to $100,000.
NCUSIF deposit insurance doesnít cover nondeposit investment products offered through some credit unions, such as mutual funds and annuities.
|Does NCUA insure my joint accounts separately from my individual accounts?
Yes, as long as: 1) each co-owner personally has signed an account signature card; and 2) each has the same right-of-withdrawal as the other co-owners. All joint accounts held by the same combination of individuals are added together and insured for up to $100,000, and prorated equally between the owners. If you have multiple joint accounts, each having different co-owners, your share of those accounts is added together for the purpose of insurance coverage. Say you and your spouse maintain a joint account containing $100,000 and you also have $25,000 in a joint account with your child. Your individual total insured interest would be $62,500 ($50,000 + $12,500).
If I have accounts at more than one credit union, how is the deposit insurance coverage calculated?
NCUSIF deposit insurance covers a member's deposits in one credit union independent of deposits in any other federally insured credit union. If you have three accounts at three different credit unions, each account would be insured up to the maximum limit--for a total of up to $300,000.
|Could my credit union terminate its NCUSIF coverage?
A federally chartered credit union canít drop its NCUSIF coverage without converting to a state charter. State credit unions may terminate federal deposit insurance in some states, but not without the approval of their membership and the NCUA Board. Most state regulators require NCUSIF coverage.
NCUSIF coverage terminates once a credit union converts to another licensed deposit insurance program. If a credit union decides not to provide deposit insurance, NCUSIF insurance remains in effect for a year following the effective date of termination.
| A credit union canít|
without approval of
its members and
the NCUA Board.
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|©1998 Credit Union National Association, Inc.|