When it comes to managing your finances, choosing the right type of financial institution to safekeep your money is crucial. Two options you might already be familiar with are banks and credit unions. While these institutions offer similar financial services, there are notable differences between them.
Banks are for-profit institutions owned by shareholders. They offer a variety of financial services, including checking and savings accounts; mortgages, personal and/or car loans; and credit cards. On the other hand, credit unions are not-for-profit institutions owned solely by their members. They offer similar financial services as banks, but many also focus on serving their community by offering competitive small business loans and grants to local organizations.
Another key difference between corporate banks and credit unions is the fees and interest rates they charge. Banks tend to charge higher fees and offer lower interest rates on savings accounts and loans. Credit unions, however, typically have lower fees and higher interest rates on savings accounts and loans. Because credit unions operate as not-for-profit institutions, they can reinvest their earnings into their organization and offer better rates and fees to their members.
Federal deposit insurance is mandatory for all federally chartered banks and savings institutions. Banks are typically insured by the Federal Deposit Insurance Corporation (FDIC), which provides up to $250,000 in coverage per depositor, per institution, for each account ownership category. The FDIC covers many common deposit accounts but does not insure investment accounts. Here are the following types of covered accounts:
- Checking accounts
- Savings accounts (including high-yield savings accounts)
- Money market deposit accounts
- Negotiable order of withdrawal accounts
- Time deposits such as CDs
- Cashier’s checks and money orders
Here are other common accounts that are not covered by FDIC Insurance:
- Stock or bond investments
- Mutual funds
- Cryptocurrency assets
- Life insurance policies
- Annuities
- Safe deposit boxes or their contents
- US Treasury bills, bonds, or notes (these are backed by the “full faith and credit of the US government”)
Credit unions are insured by the National Credit Union Share Insurance Fund (NCUSIF), which also provides up to $250,000 in coverage per depositor, per institution, for each account ownership category. Basic NCUSIF coverage includes checking and savings accounts, money market accounts, and share certificates. In some instances, it’s possible to insure more than the $250,000 limit. We’ll cover how to do this in a future blog post!
It’s important to note that not all credit unions are federally insured. Some credit unions are insured by private insurance companies, which may have different coverage limits and requirements. Also important to note: this article did not review or compare banks and credit unions with savings and loan institutions.
The information contained in this blog should not be a substitute for obtaining advice on accounts and deposit insurance directly from your financial institution. It is important to check with your bank or credit union to ensure your deposits are adequately insured.