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The Safety of Credit Unions: How They Protect Your Finances

The Safety of Credit Unions: How They Protect Your Finances

Are credit unions safe? That's an incredibly relevant question in this day and age of bank failures and cryptocurrency hacks.

Even if you haven't heard recent chatter about these things, you still probably want to know whether or not credit unions are a secure place for your money. The quick answer is "yes."

But, for those of you who aren't yet familiar with how credit unions function, let's shed some light on how they operate and what they do to protect your deposits.

Understanding How Credit Unions Work

Credit unions are nonprofit financial institutions that are owned by their members rather than outside investors. Because credit unions aren't publicly traded entities like banks; individual depositors can exert influence over decisions made by the credit union's governing body.

Membership is open to anyone who meets certain eligibility requirements and chooses to join. For instance, some credit unions are designed to serve educators or people living in a specific geographical area.

Aside from their democratic nature and the membership-skewed focus of their mission and operations, credit unions generally offer similar products and services as commercial banks. Most credit unions have processes and technology similar to most conventional banks — like checking accounts and online banking. However, compared to banks, credit unions are known for providing better, more personalized customer service and (often) easier access to certain financial vehicles (e.g., loans or credit cards).

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Why Financial Safety Matters

When you deposit your money at a financial institution, you expect it to be well-guarded. And rightly so.

After all, you're squirreling away your acorns for later feasting. You want to feel assured that those nuts will be there when you need them. It's why you are stuffing your dollar bills into your mattress, amassing a tidy fortune so you can buy a house someday.

This isn't even to mention that if your funds were to disappear or otherwise be inaccessible, you might not be able to meet your financial obligations. Not having one's funds available to them could send them down a destructive path to major money problems.

More broadly, it's critical that we — as a society — have confidence in our financial and banking systems because they're tied to the health of our overall economy. A robust economy is more resilient and better able to weather things like recession rumblings or runs on banks.

So, yes, financial safety and ensuring our financial institutions are on solid footing is a big, consequential deal.

This naturally leads one to wonder how safe are credit unions….

Are Credit Unions Safe? A Look at Their Many Safety Measures

Fortunately, key players at all levels of the financial system  — from regulators to individual branches to members — are taking active roles in helping keep credit unions safe. Here are just some of the safety mechanisms that are in place.

Regulation & Supervision

To ensure their safety and soundness, credit unions in the United States are subject to a number of regulations and oversight measures designed . They must comply with federal and state laws and regulations set forth by multiple agencies. 

The National Credit Union Administration (NCUA) is the federal agency that oversees credit unions. It's responsible for:

  • Ensuring that credit unions comply with federal laws and regulations
  • Providing oversight of credit unions' operations and activities
  • Insuring eligible deposits
  • Helping to protect the interests of members
  • Chartering and regulating federal credit unions

This agency has the authority to:

  • Inspect credit unions
  • Require reports
  • Take enforcement actions for non-compliance with federal laws

In addition to the NCUA, credit unions may also be subject to state regulatory agencies. State regulatory agencies may have the authority to:

  • Create rules for credit unions
  • Supervise credit unions
  • Inspect credit unions
  • Take enforcement action against those that do not comply with state laws

The NCUA and state regulatory agencies often work together to ensure that credit unions are in compliance with applicable laws or to review and approve applications from credit unions that want to expand their operations across state borders.

Insurance Coverage

There are two kinds of insurance available to credit unions.

Federal Insurance

In the US, credit unions are insured by the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF, which is administered by the NCUA, is designed to protect members’ deposits in the event of a credit union failure. All federally insured credit unions in the US must be members of the NCUSIF and must contribute a percentage of their assets to the fund.

Deposits in federally-insured credit unions are eligible for a maximum of $250,000 per account in insurance coverage. This includes money held in checking and savings accounts, certificates of deposit, and money market accounts. Joint accounts are also eligible for up to $250,000 in coverage.

Private Insurance

In addition to the NCUSIF, some credit unions purchase private insurance coverage to protect deposits above $250,000. This type of insurance is provided by private companies and may offer additional protection for members’ deposits.

Private insurance does not replace or supersede federal insurance.

Are Credit Unions Safer Than Banks? 

We know that even mentioning the potential need for depository insurance can seem scary. So, let us reassure you — credit unions are historically a strong and resilient kind of financial institution.

According to recent research:

  • Credit unions have a far better success rate than banks of similar size.
  • In recessionary periods, for a variety of reasons, credit unions tend to fare better than banks.

Ultimately, experts generally consider credit unions to be a safe place to stash your cash.

Financial Stability

It's no accident — or sheer luck — that credit unions have a good safety record. Some things that contribute to credit unions' being and staying financially stable include:

  • Sensible investing. Credit unions are known for incorporating sound investment strategies. Because they take their members' best interests into account, credit unions are less likely to take significant risks with the money on deposit.
  • Adequate capital. According to strict rules, credit unions are required to maintain certain levels of liquidity and capital. This helps credit unions withstand market volatility and reduces vulnerability caused by bad loans. If a credit union becomes undercapitalized, the NCUA requires them to take prompt corrective action. 
  • Tighter regulation. Credit unions also face greater statutory restrictions on lending than banks. This means there are more limitations on who can get a loan from a credit union, how much they can borrow, and so on.
  • Member-owners model. Most credit unions are managed by a dedicated board of directors who are elected by and accountable to the members. This helps ensure that the board's decisions and actions align with members’ needs and wishes.

All in, credit unions typically operate more prudently and conservatively than banks.

Security Protocols

Credit unions take extreme care to ensure their members’ accounts and data are secure. They follow countless guidelines and procedures to safeguard your money and personal identifiable information (PII).

  • Limited roles. Credit unions may restrict access to systems and information or ability to perform certain actions by user type. For example, there are some functions a manager may be able perform that an associate isn’t permitted to.
  • Disclosures and authorizations. Credit unions provide terms and conditions for products and services that members must sign off on to complete the set-up or transaction. This exchange surfaces pertinent details, obligations, etc. and records who has rights and responsibilities for accounts and data.
  • Strong authentication. Many credit unions enable members to use multi-factor authentication when accessing their accounts online. This helps ensure that only authorized users are able to access accounts.
  • Encryption. Credit unions use encryption to protect data while it is in transit. They also store sensitive data in secure, encrypted databases. This ensures that only authorized people can see or manage the data.
  • Firewalls. Credit unions use firewalls to help keep unauthorized users out of their networks and protect data and systems from malicious attacks and viruses.
  • Fraud detection. Credit unions have sophisticated systems in place to monitor for suspicious activity on members’ accounts. If abnormal account usage or other activity patterns are discovered, the credit union will take steps to protect the account and alert the member.
  • Education. Employees of credit unions are required to complete training on security-related topics so that they can proactively protect systems and data, recognize suspicious activity, and take action if they see problems or vulnerabilities. Additionally, many credit unions work hard to help their members be informed and aware of security matters.

To stay on top of shifting technology, laws, and more, credit unions regularly review and update their security protocols.

safety of credit unions

Beyond Credit Unions Safety: More Benefits of Membership

Joining a credit union can have so many advantages.

Studies show that members overwhelmingly trust their credit unions. It’s a leading contributor to member satisfaction and retention, actually.

But, credit unions also boast a number of benefits that may or may not relate to the security question. They’re earning respect and distinction for offering members desirable things like:

  • High-quality individualized service
  • Fewer and lower fees
  • Better interest rates
  • More flexible or favorable terms
  • Special incentives and perks
  • Community investment or support

Enjoy Peace of Mind by Choosing the Right Credit Union

Valley Credit Union takes security seriously. We have a full slate of safety mechanisms established to keep your deposits protected. It’s really core to our daily operations.

Contact us if you have questions about how we keep your money safe. Our talented team is happy to help — we want you to be confident in your financial choices!

About the Author

 Pat ForcePresident and CEO

Pat Force has been President and CEO of Valley Credit Union since 2016. He has worked in banking for over 30 years and has an MBA. Pat is passionate about credit unions and their “people helping people” philosophy. He enjoys collaborating with others to arrive at a result that works for the common good. Away from the office, Pat likes to spend time with family, travel, read and go for a nice, long hike.

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