How Does Deposit Insurance Work?

Written By Andrew Porterfield

Are you wondering if your funds are safe in a credit union or bank? You can rest assured. With a federally insured financial institution, the money in your checking or savings account, up to $250,000, is safe, secure, and ready to fund your dreams — thanks to deposit insurance.

Let's explore how deposit insurance works so you can have peace of mind and save confidently. If you have any concerns about deposit insurance, we're here for you! Give us a call — we're happy to explain how we protect you and your money as a digitally secure, federally insured credit union.

What Is Deposit Insurance?

Deposit insurance is federally backed protection for your funds in a credit union or bank. You don’t need to purchase additional insurance: your financial institution covers these costs as a benefit to you. Deposit insurance ensures that your money stays safe if your financial institution hits a bump in the road.

The federal government administers deposit insurance to financial institutions through the National Credit Union Administration (NCUA) for credit unions and the Federal Deposit Insurance Corporation (FDIC) for banks.

The National Credit Union Share Insurance Fund

Federally insured credit unions provide their members protection through the National Credit Union Share Insurance Fund (NCUSIF), which is administered by the NCUA. The Share Insurance Fund covers up to $250,000 per ownership type.

For example, in a single ownership category, the total funds in that category are insured up to $250,000. If you have more than $250,000 at a federally insured credit union, you may be eligible to open accounts in different ownership categories. This allows you to spread your money across various accounts at the same credit union, ensuring each account is covered up to $250,000.

Ownership categories include:

  • Individual accounts

  • Joint accounts

  • Retirement accounts

  • Trust accounts

The FDIC's Deposit Insurance Fund

Federally insured banks are backed by the FDIC's Deposit Insurance Fund. Like share insurance for credit unions, the FDIC's deposit insurance covers up to $250,000 per depositor with each ownership category.

Just like credit unions, federally insured banks don't require you to take additional steps to insure your money beyond staying within the $250,000 limit. If you have over $250,000 in an account, you can work with your bank to open accounts in different ownership categories to ensure every dollar’s protected.

Is Your Account Covered?

If your credit union is NCUA-insured, the NCUA covers member deposits in the following account types:

  • Share savings accounts

  • Share draft accounts or checking accounts

  • Money market accounts

  • Share certificates, which are similar to CDs

Trusts may also qualify for coverage. The Share Insurance Fund insures individual retirement accounts (IRAs), including Roth IRAs, as one category and Keogh retirement accounts as a separator category.

Similarly, FDIC insurance covers deposits in savings, checking, money market, and negotiable order of withdrawal accounts with FDIC-insured banks. The FDIC also insures money orders, cashier's checks, official bank-issued items, and time deposits such as CDs. Some retirement accounts and trusts may also be covered.

  • The NCUA and FDIC do not cover:

  • Safe deposit boxes and their contents

  • Digital assets such as cryptocurrency

Investment vehicles like bonds, stocks, mutual funds, life insurance policies, or annuities.

The FDIC does not cover municipal securities or United States Treasury bills.

Example Accounts

Let's look at an example to help you understand whether your funds are covered. Suppose you had these accounts:

Individual share certificate: $100,000

Joint checking account: $200,000

IRA: $300,000

With these accounts, the NCUA would insure the full $100,000 in your share certificate and the full $200,000 in your joint checking account. However, your IRA would only be covered up to $250,000, as this is the limit for IRAs. In this case, $50,000 of your IRA would not be covered.

To manage this, you might consider moving some of the funds in your IRA to another account or retirement account to ensure all your funds are fully protected.

You can use NCUA's Share Insurance Estimator to determine your share insurance coverage for each account you have with a credit union. Additionally, check out the NCUA's Share Insurance Overview video for a helpful, simple breakdown of share insurance.

How Do You Know if a Credit Union or Bank Is Federally Insured?

Federally insured credit unions will display the NCUA insurance sign at their physical locations, while banks display the FDIC sign. You can also search for your credit union on the NCUA website to confirm it's backed by the NCUA or use the FDIC's BankFind tool to make certain your bank is federally insured.

Credit unions cannot terminate their federal insurance without notifying members first, so you will have time to move your assets if your credit union ends their coverage.

Why Do We Have Deposit Insurance?

In 1970, credit unions saw massive growth, so Congress created the NCUA, which supervises all federal credit unions. Congress also created the Share Insurance Fund in the same year to protect credit union members' deposits if their credit union fails. That said, federally insured credit unions rarely fail due to the standards they must meet to maintain share insurance coverage.

Banks have a different history when it comes to deposit insurance. After the Great Depression, 40% of U.S. banks closed, failed, or were absorbed by other banks, leading to the passage of the Banking Act of 1933, or the Glass-Steagall Act. This act established deposit insurance managed by the FDIC.

Overall, deposit insurance provides peace of mind knowing your deposits are safe and gives you more confidence in your financial institution.

How Deposit Insurance Works

In the rare instance that a federally insured credit union faces operational challenges, the NCUA steps in. They may place the credit union in a conservatorship, meaning they take control of it until they resolve operational issues. During a conservatorship, the credit union's members can do business as usual, and the Share Insurance Fund still protects their accounts.

The conservatorship might also lead a credit union to merge with another one or undergo liquidation. With liquidation, the credit union closes, and another credit union may acquire it. In the meantime, the NCUA manages member accounts.

If the credit union is not acquired by another credit union, the NCUA ensures members are paid their shares — typically within a week of closure.

However, credit union members have never lost a single cent of insured funds at a federally insured credit union. You can be confident in saving money with a federally insured credit union, knowing they'll always have your back.

If a bank fails, the FDIC guarantees a healthier bank takes over and manages depositors' accounts. If no bank is willing to purchase the failed bank, the FDIC makes sure bank customers are directly paid up to their insured amounts.

Why Trust Blue Eagle Credit Union

As a federally insured credit union with a long history of serving our community, Blue Eagle Credit Union knows its stuff — and loves its members. We go back to 1948 when we were founded as a credit union offering affordable services to Southwest Virginia's postal workers. In 2013, we opened our doors to the communities in the greater Roanoke and Lynchburg, Virginia, areas, changing our name to Blue Eagle Credit Union.

As a not-for-profit financial cooperative, our sole purpose is to help people. In other words, we wouldn't tell you anything we wouldn't tell our sister, brother, grandmother, best friend, or anyone else we care about. You can count on us to speak the truth and always keep your best interests at heart.

Have Peace of Mind With Blue Eagle Credit Union

Overall, deposit insurance brings peace of mind while you save your hard-earned money. Blue Eagle Credit Union takes it further with personalized services and a strong commitment to meeting our members' needs.

We understand that life happens. And when it does, we’ve got your back. We offer fair, affordable financial services to help you Pay Less. Earn More. Have Fun.

Whether you're looking to begin saving or have a head start, we're here to help you! You can easily open an account online or schedule an appointment to get started over the phone or in person — we'd love to meet you!

Interested in Learning More?

Check out the following resources for more information about deposit insurance:

Andrew Porterfield
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