Keeping your money in a bank is the safer option than digging a hole under your bed and hoping for the best. Safety, of course is the number one priority for your hard earned money and a bank guarantees that. Having cash with you is risky due to theft and the likelihood of spending it is higher than when it is deposited in the bank. There is also the possibility of losing money that you can never recover, whereas if it was in the bank, all you have to do is stop all transactions going through with just a simple phone call to your bank.
There are a lot of questions regarding Credit Unions and people still don’t know what they are all about. There is little or no information as to how Credit Unions work. In actual fact, banks and Credit Unions are very similar. Let us explore what they do and how they safeguard your money.
What a Credit Union is: The owners of the Credit Union
Credit Unions are nonprofit organizations. Now when I say non profit, it does not mean that they are a charity network. They are institutions that are owned by the customers. The whole point is to achieve quality of service as opposed to banks who work on acquiring profit. A bank is run by shareholders who expect a certain financial performance from management of the bank. They still have the functions that a bank has and that is to:-
- Compete with other financial institutions
- Pay salaries
- Collect revenue
Who manages a Credit Union?
It is not very different from a bank. There is a manager, tellers and even a security guard at the door. The same kind of personnel required to run a bank is found at a Credit Union. The higher management is made up of a board of directors who are responsible for all the decisions of the facility. It comprises of people who have been elected by volunteering. Unlike the personnel in the bank, they don’t get paid to do it. All they have to do is make the necessary adjustments on how the place will be run. In other words, the basic outcome is to ensure that they have a say on things.
So, are Credit Unions institutions you can trust with your money?
They operate the same way a bank operates, so yes, they are safe. There is only one thing that would be somewhat of a concern and that is, if they aren’t federally insured.
FDIC Insurance protects your money from any kind of mishaps the facility may have and it provides secure coverage for your money.
Federally insured Credit Unions already have the name “Federal” as part of their name, so it is easy to tell which ones are insured or not. If there is nothing like that on the credit union you plan to put your money in, then maybe you should reconsider your choice. Private Credit Unions are not necessarily unsafe, but it would be a good idea to get one that has the support of the government, incase of anything happening.
In the Credit Unions, this kind of insurance is called NCUSIE Insurance, which instead of being provided by the FDIC, is given by NCUA (National Credit Union administration). This kind of insurance is government approved and fully backed by it. If anything was to happen to the Credit Union that your money is in, then the government would fully replace it.
How the Insurance Works
Both the NCUSIF and FDIC provide coverage up to two thousand and fifty thousand dollars per person who has an account in the facility. They will not pay higher than that, which when you think about it, is not a bad deal. It is better than nothing at all.
The NCUSIF will not insure amenities, investments or mutual funds.
It will only insure the following:-
- Certificates of Deposits (CDs)
- Savings accounts
- Checking accounts
- Money Market accounts (excluding money market funds)
So, what have we learnt about Credit Unions?
- They are not so different from Banks. They offer the same services and do the same job. They have the same setup except that the banks pay their employees and aim to profit from their customers.
- The customers run the institution. They make decisions on how it should be run in every aspect. They make sure that the Credit Union is running smoothly and efficiently.
- They do not profit from the customers. They do not get paid to run the facility. It is purely on a volunteer basis.
- Private Credit Unions are not insured.
- Those that are; NCUA provides the coverage. This is like the FDIC of banks. They can cover up to 250,000 dollars incase of anything.