Are credit unions safer than banks during recession?
Credit unions are generally considered to be safer than banks during economic downturns due to their conservative approach to risk and their emphasis on financial robustness.
bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.
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.
Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.
However, because credit unions serve mostly individuals and small businesses (rather than large investors) and are known to take fewer risks, credit unions are generally viewed as safer than banks in the event of a collapse. Regardless, both types of financial institutions are equally protected.
When it comes to the safety of customer's money, both banks and credit unions insure up to $250,000 per individual customer. While banks are insured by the FDIC, credit unions are insured by the NCUA.
Since credit unions' missions are to serve their local communities, they're more likely to be in your corner during economic uncertainty compared to a big national bank. Also, a 2022 report by the Ascent stated research shows credit unions are less likely to fail compared to banks during recessions.
Causes of credit union failures
Nationally, two have gone under already in 2023, and on average seven failed in each of the prior five years, according to data compiled by the National Credit Union Administration, a federal agency akin to the FDIC or Federal Deposit Insurance Corp. for banks.
The pros of credit unions include better interest rates than banks, while the cons include fewer branches and ATMs.
For decades, bankers have objected to the tax breaks and sponsor subsidies enjoyed by credit unions and not available to banks. Because such challenges haven't slowed down the growth of credit unions, banks continue to look for other reasons to allege unfair competition.
What happens if a credit union goes bust?
If a credit union is placed into liquidation, the NCUA's Asset Management and Assistance Center (AMAC) will oversee the liquidation and set up an asset management estate (AME) to manage assets, settle members' insurance claims, and attempt to recover value from the closed credit union's assets.
The NCUSIF (National Credit Union Share Insurance Fund) insures credit unions while the FDIC (Federal Deposit Insurance Corporation) insures banks. Both are government-backed agencies that will protect your cash. But if you come across a bank or credit union that isn't insured, don't put your money there.
Money held in credit union accounts is insured through the National Credit Union Administration (NCUA). Many types of accounts are covered by insurance such as checking, savings, certificates of deposit, money market accounts, and others.
National Credit Union Administration (NCUA) credit unions had seven conservatorships/liquidations in 2022 and two so far in 2023.
Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circ*mstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.
FDIC Insurance
Most deposits in banks are insured dollar-for-dollar by the Federal Deposit Insurance Corp. This insurance covers your principal and any interest you're owed through the date of your bank's default up to $250,000 in combined total balances. You don't have to apply for FDIC insurance.
Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.
Dec. 31, 2008 – Nineteen consumer-owned credit unions fail in 2008, resulting in a loss of $232 million to the National Credit Union Share Insurance Fund.
The Federal Deposit Insurance Corp. (FDIC) insures bank accounts up to $250,000 per depositor, per account category. 1 So, unless your bank is not insured by the FDIC or you have deposited more than the FDIC limit, your money is safe if your bank fails.
Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid assets with minimal risk, such as Treasury bills, money market funds and certificates of deposit. Money market funds and high-yield savings are also places to salt away cash in a downturn.
Are CDs safe if the market crashes?
Yes, CDs are generally still safe even if a stock market crash occurs. CDs are a type of bank account. Many accounts offer a set rate of return for a specific timeframe that won't fluctuate.
Failed banking institutions - the one number that continued to grow all year. After a year in which only three banks closed (and none the two years prior), 2008 saw 25 banks and 15 credit unions shuttered.
Credit unions typically provide better savings and lending rates, van Faassen says. NCUA insurance: Federally insured credit unions are backed by the U.S. government.
Bank | Forbes Advisor Rating | Learn More CTA text |
---|---|---|
Bank of America | 4.2 | |
Wells Fargo Bank | 4.0 | Learn More |
Citi® | 4.0 | |
Barclays | 3.4 |
- Alliant Credit Union.
- Connexus Credit Union.
- First Tech Federal Credit Union.
- Pentagon Federal Credit Union.
- Self-Help Credit Union.
References
- https://www.investopedia.com/what-happens-if-my-bank-fails-7378029
- https://www.forbes.com/advisor/banking/difference-between-bank-and-credit-union/
- https://smartasset.com/financial-advisor/where-do-millionaires-keep-their-money
- https://www.usnews.com/banking/articles/facts-about-credit-unions
- https://www.businessinsider.com/personal-finance/are-cds-safe
- https://www.forbes.com/advisor/banking/is-my-money-safe-in-the-bank/
- https://www.foxbusiness.com/markets/how-safe-credit-unions-bank-turmoil
- https://ncua.gov/files/oig/oig-top-management-performance-challenges-2024.pdf
- https://www.nerdwallet.com/article/banking/credit-unions-vs-banks
- https://www.bankrate.com/banking/credit-unions/credit-union-pros-and-cons/
- https://www.stlouisfed.org/publications/regional-economist/october-2003/credit-unions-make-friendsbut-not-with-bankers
- https://www.mx.com/blog/biggest-us-credit-unions-by-asset-size/
- https://www.noradarealestate.com/blog/is-bank-of-america-in-trouble/
- https://www.quora.com/What-happens-to-the-funds-in-a-credit-union-if-it-goes-bankrupt
- https://www.creditunion1.org/learn/whats-the-difference-between-a-credit-union-and-a-bank/
- https://blog.logixbanking.com/smartlab/are-credit-unions-safer-than-banks
- https://www.cutimes.com/2023/04/14/small-credit-unions-are-thriving/
- https://www.bankrate.com/banking/credit-unions/ncua-how-your-savings-at-credit-unions-are-insured-by-the-government/
- https://www.forbes.com/advisor/banking/safest-banks-in-the-us/
- https://finance.yahoo.com/news/us-banks-trust-hard-earned-154119069.html
- https://ncua.gov/files/letters-credit-unions/LCU2010-03Encl.pdf
- https://www.usnews.com/banking/articles/credit-union-vs-a-bank
- https://www.noradarealestate.com/blog/list-of-failed-banks/
- https://ncua.gov/about/historical-timeline
- https://firstchoicecreditunion.ie/savings/savings-limit/
- https://www.nerdwallet.com/article/banking/pros-cons-online-only-banking
- https://www.hughesfcu.org/blog/detail/2023/01/12/reasons-to-move-your-money-to-a-credit-union
- https://www.fool.com/the-ascent/banks/where-put-money-recession/
- https://www.forbes.com/advisor/banking/navy-federal-credit-union-review/
- https://apnews.com/article/business-financial-services-signature-bank-6aa3564a8acda9098929abe4741fcbfd
- https://www.investopedia.com/deposit-insurance-keeps-bank-accounts-safe-even-if-its-funding-runs-dry-7496229
- https://www.bankrate.com/banking/credit-unions/biggest-credit-unions-in-america/
- https://www.nerdwallet.com/article/banking/how-to-insure-your-money-when-youre-banking-over-250k
- https://blog.usccreditunion.org/blog/5-reasons-to-keep-your-money-at-a-credit-union
- https://www.fool.com/the-ascent/banks/articles/over-1-trillion-has-left-traditional-banks-heres-whos-pulling-their-money/
- https://waterfordcu.ie/about/frequently-asked-questions/
- https://www.nwcu.com/blog/why-nwcu-and-other-credit-unions-arent-impacted-recent-bank-failures
- https://westreet.org/is-my-money-safe-in-a-credit-union/
- https://www.advantiscu.org/about/why-are-credit-unions-safer-than-banks
- https://www.usaa.com/inet/wc/advice-finances-safe-place-for-saving-cash
- https://www.sofi.com/learn/content/do-credit-unions-help-build-your-credit/
- https://www.bankrate.com/banking/banks-vs-credit-unions/
- https://www.1edcu.org/are-credit-unions-safer-than-banks-in-a-collapse/
- https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp
- https://www.bankrate.com/banking/credit-unions/list-of-failed-credit-unions/
- https://www.communitycu.ie/services/account-services/
- https://www.fdic.gov/analysis/cfr/2014/wp2014/2014-04.pdf
- https://www.linkedin.com/pulse/7-reasons-why-credit-unions-struggling-jessica-macroberts-ruh3e
- https://www.bankinfosecurity.com/forty-failed-banks-credit-unions-2008-a-1140
- https://www.azcentral.com/story/money/business/consumers/2023/03/19/why-credit-unions-could-see-boost-from-turmoil-in-banking-industry/70014207007/
- https://www.cnbc.com/select/what-is-a-credit-union/
- https://www.consumerfinance.gov/ask-cfpb/how-can-i-be-sure-my-money-is-safe-in-my-bank-account-en-1005/
- https://www.ramseysolutions.com/banking/credit-union-vs-bank
- https://www.forbes.com/advisor/banking/if-a-bank-closes-what-happens-to-my-money/
- https://www.forbes.com/advisor/banking/best-credit-unions/
- https://www.usnews.com/banking/articles/is-my-money-safe-at-the-bank
- https://money.usnews.com/money/personal-finance/family-finance/articles/how-you-can-protect-your-money-in-the-wake-of-banking-collapses
- https://www.cbsnews.com/news/is-my-money-safe-in-the-bank-2023/
- https://www.quora.com/Is-it-legal-to-store-large-amounts-of-cash-at-home-in-the-United-States
- https://www.cnet.com/personal-finance/banking/advice/difference-between-bank-and-credit-union/
- https://fortune.com/recommends/banking/what-is-ncua-insurance/
- https://ncua.gov/support-services/conservatorships-liquidations
- https://www.thebalancemoney.com/how-banks-make-money-315473
- https://smartasset.com/investing/where-do-billionaires-keep-their-money
- https://www.nolo.com/legal-encyclopedia/bankruptcy-credit-unions-things-look-out-for.html
- https://www.nerdwallet.com/best/banking/best-credit-unions
- https://money.usnews.com/investing/articles/best-investments-during-a-recession
- https://www.cusocal.org/blog/how-to-get-a-debit-card
- https://www.fool.com/the-ascent/banks/credit-union-vs-bank/
- https://www.investopedia.com/credit-unions-vs-banks-4590218
- https://www.azcentralcu.org/blog/credit-unions-and-recessions/
- https://www.bankrate.com/banking/fdic-insurance/
- https://www.cnbc.com/select/bank-vs-credit-union/
- https://pluscu.co.uk/deposits-and-withdrawals
- https://finances.extension.wisc.edu/2023/05/09/is-it-safe-to-put-money-in-a-bank-or-credit-union-account/
- https://www.cusocal.org/Learn/Financial-Guidance/Blog/Are-Credit-Unions-Safer-than-Banks
- https://www.edvisors.com/student-loans/credit-unions/credit-union-pros-and-cons/
- https://smartasset.com/investing/5-things-to-invest-in-when-a-recession-hits
- https://www.financestrategists.com/banking/largest-credit-unions-in-the-usa/
- https://www.parksidefcu.com/is-the-money-in-my-account-safe/1806/
- https://www.lendingclub.com/resource-center/personal-savings/fdic-vs-ncua-insurance-are-banks-or-credit-unions-safer
- https://www.sofi.com/learn/content/can-the-government-take-money-out-of-your-account/
- https://www.dcu.org/financial-education-center/budgeting-saving/are-credit-unions-safe-for-your-savings.html
- https://www.marketplace.org/2023/06/02/just-how-safe-are-credit-unions/