If you’ve ever wondered the difference between a credit union and a federal credit union, this is the article for you. First off, credit unions are financial institutions, similar to a bank, but with its own unique characteristics. Some defining features of a credit union are that they are a non-profit organization owned by all of its members, that they are democratically governed, and that they offer higher savings rates. As you can see based on these characteristics alone, credit unions are more directed towards the community and population than are banks. Now, to discuss the difference between a federal credit union and a credit union.
What Is a State-Chartered Credit Union?
There are two types of credit unions, the first one being a state-chartered union. These are not insured by the U.S. government (hence it being state-chartered), and are instead insured through the National Credit Union Association.
Some deposits at state-chartered credit unions are insured by private insurers, which provide non-federal share deposit insurance coverage of deposits that are not backed by the U.S. government. You can contact a credit union’s customer service to inquire about its insurer if it’s not federally insured.
What Is a Federal Credit Union?
The other type of a credit union is a federal credit union. The easiest way to differentiate between state chartered and federally chartered unions is to look at the way they are insured. For the most part, federal and non-federal unions are the same in most aspects.
Federal credit unions are insured by the National Credit Union Share Insurance Fund. The NCUSIF is administered by the National Credit Union Administration, an independent agency. The fund is a federal insurance fund backed by the U.S. government. Like the insurance provided by the FDIC, NCUSIF insurance covers deposits of up to $250,000 per individual investor.
Congress created the NCUSIF in 1970 to protect deposits at credit unions. Today, about 98 percent of all credit unions in the U.S. are federally insured. A credit union is not allowed to discontinue its federal insurance without first notifying members.
How to Choose the Right Credit Union for You
So, now that you know the difference between the two types of credit unions, you can make an informed decision on which one is right for you. It really boils down to what you’re comfortable with having your money insured by. If you’d rather have your money insured by the US government, then choose a federal credit union. If you don’t trust the government and would rather have your money insured by a private insurer, then consider going with a state chartered credit union. Most credit unions are federally insured, so you might want to take a closer look at the other features being offered, such as ATM charges, online banking options, and availability of loans. Good luck!
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