Haris Ashley
Commercial banks and credit unions are two of the three major types of depository institutions in the United States. Commercial banks are for-profit businesses that take deposits, make loans, and offer a wide range of financial services. They receive deposit insurance from the Federal Deposit Insurance Corporation (FDIC) through the Bank Insurance Fund (BIF). On the other hand, credit unions are non-profit, cooperative financial institutions owned and controlled by their members. They also accept deposits, make loans, and provide various financial services, but their focus is on providing reasonable rates for their members. Credit unions are insured by the National Credit Union Share Insurance Fund, controlled by the National Credit Union Administration (NCUA), which was created by Congress in 1970.
| Characteristics | Values |
|---|---|
| Insurer of commercial banks | Federal Deposit Insurance Corporation (FDIC) |
| How commercial banks are insured | Through the Bank Insurance Fund (BIF) |
| Insurer of credit unions | National Credit Union Administration (NCUA) |
| How credit unions are insured | Deposits insured up to at least $250,000 per individual depositor |
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What You'll Learn
Commercial banks insured by the Federal Deposit Insurance Corporation (FDIC)
Commercial banks are the traditional "department stores" of the financial services world. They receive deposit insurance from the Federal Deposit Insurance Corporation (FDIC) through the Bank Insurance Fund (BIF). The FDIC is a United States government corporation that supplies deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The insurance limit was initially $2,500 per ownership category, and this has been increased several times over the years. Since the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010, the FDIC insures deposits in member banks up to $250,000 per ownership category. FDIC insurance is backed by the full faith and credit of the government of the United States. According to the FDIC, "since its start in 1933, no depositor has ever lost a penny of FDIC-insured funds".
The FDIC provides extensive resources for bankers, including guidance on regulations, information on examinations, legislation insights, and training programs. The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages receiverships of failed banks. As of June 2024, the FDIC provided deposit insurance at 4,517 institutions. As of Q3 2024, the Deposit Insurance Fund (DIF) stood at $129.2 billion, or a 1.21% reserve ratio. FDIC-insured institutions are permitted to display a sign stating the terms of its insurance—that is, the per-depositor limit and the guarantee of the United States government. The FDIC describes this sign as a symbol of confidence for depositors.
The FDIC only insures your money if it is in a deposit account at an FDIC-insured bank. Banks offer some financial products and services that are not deposits, and the FDIC does not insure them. These include large and small banks across the country that offer deposit accounts backed by FDIC deposit insurance. Coverage is automatic when you open one of these types of accounts at an FDIC-insured bank.
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Credit unions insured by the National Credit Union Share Insurance Fund
The National Credit Union Share Insurance Fund (NCUSIF) was established by Congress in 1970 to insure member deposits in federally insured credit unions. The fund is administered by the National Credit Union Administration (NCUA) and is similar to the Federal Deposit Insurance Corporation's (FDIC) coverage. Credit union members are automatically insured by the NCUSIF when they join a federally insured credit union; they do not need to apply for coverage.
The NCUSIF covers individual accounts at federally insured credit unions up to $250,000, and a member's interest in all joint accounts combined is insured up to $250,000. Additionally, the fund separately protects IRA and KEOGH retirement accounts up to $250,000 and provides extra coverage for trust accounts. The NCUSIF covers members' accounts dollar-for-dollar, including principal and posted dividends up to the insurance limit. Federally insured credit unions must display the official NCUA insurance sign at each teller station and where they accept deposits or open accounts.
The NCUA's Share Insurance Estimator helps members understand their coverage and how the rules apply to their accounts. Members can use the estimator to calculate their insured funds for personal, business, or government accounts. The NCUA does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if these products are sold at a federally insured credit union.
Credit unions are financial institutions owned and controlled by a group of people with a "common bond." They offer savings accounts, checking accounts, and money market accounts, and their financial powers have expanded to include home loans, credit cards, and commercial loans. Credit unions are exempt from federal taxation and are insured by the NCUSIF, backed by the full faith and credit of the United States government.
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Credit union deposits insured up to $250,000
In the United States, there are three major types of depository institutions: commercial banks, thrifts, and credit unions. Commercial banks are generally stock corporations that aim to generate profits for their shareholders. Credit unions, on the other hand, are cooperative financial institutions formed by groups of people with a "common bond". These groups pool their funds to form the institution's deposit base and collectively own and control the institution.
Credit unions have expanded their financial powers over time to include activities such as making home loans, issuing credit cards, and providing commercial loans, competing directly with traditional banks. They are exempt from federal taxation and may receive subsidies from sponsoring organizations.
To ensure the safety of members' deposits, credit unions in the United States are insured by the National Credit Union Administration (NCUA). The NCUA was created by Congress in 1970 to insure members' deposits in federally insured credit unions. It operates and manages the National Credit Union Share Insurance Fund, which insures deposits of over 135 million account holders in federal and most state-chartered credit unions.
The NCUA provides deposit insurance coverage of up to $250,000 per individual depositor in federally insured credit unions. This coverage includes various types of accounts, such as Single Ownership Accounts, Joint Ownership Accounts, IRAs, and Revocable Trust Accounts. Federally insured credit unions are required to display the official NCUA insurance sign at teller stations and on their websites. Additionally, members can use the NCUA's Share Insurance Estimator to calculate the amount of insured funds in their accounts.
It is important to note that while credit unions offer a safe place to save money, the NCUA does not insure all types of assets. For example, safe deposit boxes, their contents, and digital assets like cryptocurrencies are not covered by NCUA insurance.
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Commercial banks: for-profit businesses
Commercial banks are for-profit institutions that offer a wide range of financial services to the general public and businesses. They are the traditional "department stores" of the financial services world, offering basic banking services and products such as accepting deposits, offering checking and savings accounts, and making loans. These include mortgages, auto loans, business loans, and personal loans. Commercial banks also provide their business clients with merchant services, allowing companies to accept electronic payments from customers.
The primary goal of commercial banks is to generate profits for their shareholders. They achieve this by providing loans and earning interest from them. Commercial banks use the deposits they absorb from customers to fund these loans, creating credit and facilitating economic development. The money deposited by customers in commercial banks is typically insured by the Federal Deposit Insurance Corporation (FDIC) or similar bodies, ensuring that deposits up to a certain amount are protected.
Commercial banks can vary in size, with some being large institutions with numerous branches, such as Chase and Wells Fargo, while others are smaller, like KeyBank and City National Bank. The rise of online banking has also led to the emergence of online-only commercial banks, such as Ally Bank, which operate exclusively through digital platforms.
Commercial banks are heavily regulated, with most countries having a central bank or similar regulatory bodies that oversee their operations. These regulatory bodies impose various conditions on commercial banks, such as maintaining bank reserves and meeting minimum capital requirements.
Commercial banks play a crucial role in ensuring economic and social stability and promoting sustainable economic growth. They facilitate the flow of credit and provide individuals and businesses with access to financial services, enabling economic activity and contributing to overall economic development.
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Credit unions: non-profit, member-owned institutions
Credit unions are non-profit, member-owned institutions that are formed by groups of people with a "common bond". These groups of people pool their funds to form the institution's deposit base, and the group owns and controls the institution together. Credit unions are exempt from federal taxation and sometimes receive subsidies in the form of free space or supplies from their sponsoring organizations.
Credit unions were first chartered in the US in 1909 at the state level. The federal government began to charter credit unions in 1934 under the Farm Credit Association and created the National Credit Union Administration (NCUA) in 1970. States and the federal government continue to charter credit unions, and almost all credit unions are insured by the National Credit Union Share Insurance Fund, which is controlled by the NCUA. The NCUA is responsible for regulating federal credit unions, insuring deposits, and protecting members of credit unions.
Credit unions are different from banks and other financial institutions in that those who have accounts in the credit union are its members and owners, and they elect their board of directors in a one-person-one-vote system, regardless of the amount they have invested. Credit unions see themselves as community-oriented institutions with a mission to "serve people, not profit". They aim to provide superior member service and are committed to helping members improve their financial situation.
Credit unions may provide savings accounts, or time deposits; larger institutions also offer checking and money market accounts. They can make home loans, issue credit cards, and even make some commercial loans. Credit unions often form cooperatives among themselves to provide services to members. For example, CO-OP Financial Services, the largest credit-union-owned interbank network in the US, provides an ATM network and shared branching services to credit unions.
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Frequently asked questions
Commercial banks are insured by the Federal Deposit Insurance Corporation (FDIC) through the Bank Insurance Fund (BIF).
Credit unions are insured by the National Credit Union Share Insurance Fund, which is controlled by the National Credit Union Administration (NCUA).
The NCUA is responsible for regulating federal credit unions, insuring deposits, and protecting members of credit unions.
The FDIC is a corporation created by Congress in 1933 to protect consumers and their deposits.
