What is the NCUA?

Customers form a line at a financial institution.Image: Customers form a line at a financial institution.

In a Nutshell

The NCUA was created by Congress in 1970 to regulate federal credit unions and insure deposits at all federally insured credit unions. It’s like the FDIC, but for credit unions instead of banks. The NCUA insures up to $250,000 of deposited money as safe in the event of a federally insured credit union going under. It also establishes rules for credit unions to follow and mandates annual reports from most credit unions.
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If you do your banking at a federally insured credit union, the NCUA helps make sure your money is safe.

Credit unions are not-for-profit financial institutions similar to banks in many ways. They allow customers to maintain checking and savings accounts. They also make loans and offer other financial products.

The National Credit Union Administration, or NCUA, was established in 1970 to make sure that federal credit unions providing these services are financially sound. And in case they aren’t, the NCUA provides insurance so that credit union members will recoup up to $250,000 per qualifying account if a federally insured credit union goes under.

Because of the NCUA, consumers can be confident in doing business with most credit unions. If your credit union displays an NCUA-insured sign in its branch or office, you can rest assured your deposits are protected by the full faith and credit of the United States of America.

What is the NCUA?

The National Credit Union Administration is an independent federal agency with a three-member board of directors that sets policy. Board members serve six-year terms after being appointed by the president and confirmed by the Senate. As an independent agency, the NCUA isn’t political — in fact, no more than two of the three board members can be from the same political party.

The agency’s ultimate mission is to ensure a safe credit union system by regulating and insuring federal credit unions. It’s also a member of the Federal Financial Institutions Examination Council, which develops uniform rules and reporting requirements for all financial institutions in the U.S. that accept deposits.

What is the history of the NCUA?

Credit union members co-own their institutions and share something in common, such as living in the same geographic area or working in the same profession.

Unlike for-profit banks, credit unions are member-owned nonprofits built around a cooperative model — but very much like banks, they’re still regulated to protect consumers and ensure stability.

In fact, it’s regulation that has allowed credit unions to grow and thrive. In 1934, the Federal Credit Union Act was signed into law by President Franklin D. Roosevelt to facilitate the creation of a nationwide network of credit unions. Under this law, the federal government had authority to issue charters to credit unions and oversee their operations.

Benefits of a credit union

Credit union membership expanded rapidly in the decades that followed, and by the 1960s, there were more than 10,000 federal credit unions, with more than 6 million members. Credit unions had grown so prevalent that an independent federal agency was needed to manage their oversight, prompting Congress to create the National Credit Union Administration to fulfill that role.

Since the 1970s, the NCUA has carried out its responsibilities under the FCUA. Because Congress also created the National Credit Union Share Insurance Fund to insure member deposits at federal credit unions, the NCUA is also responsible for monitoring the financial solvency of all federally insured credit unions. It also conducts annual risk assessments for federally insured state-chartered credit unions with $250 million or more in assets.

What is the difference between the FDIC and the NCUA?

While the NCUA regulates credit unions and insures deposits made at credit unions, there’s also an independent federal agency that performs the same function for banks: the Federal Deposit Insurance Corporation, or FDIC.

Created in 1933, the FDIC has regulatory authority over more than 4,000 of the nation’s banks. The agency provides up to $250,000 of insurance per depositor for FDIC-insured bank accounts, as well as accounts at financial institutions chartered by the federal government and at state-chartered banks that opt out of joining the Federal Reserve System. To limit risk and attempt to prevent bank failure, the FDIC makes and enforces rules and requires banks to provide periodic reports.

If this description of the FDIC’s mission sounds familiar, that’s because it’s not unlike that of the NCUA. The big difference is the type of financial institution holding the insured deposits.

Why is the NCUA important?

When credit unions close or are put into conservatorship because of serious financial problems, they may not actually have enough money on hand to return the cash each member had deposited with the credit union. If not for the NCUA, some credit union members might never again see the money from their savings accounts or checking accounts.

But because of the NCUA, no members of a federally insured credit union have lost their money when a credit union has gone under. When that happens, members typically get their funds — from qualified accounts and up to the insured limit — back within just five days.

Federal insurance for deposits not only protects the faith of individual consumers in financial institutions, it also protects the economy as a whole.

When consumers fear their deposits aren’t safe, bank runs happen. Consumers rush to withdraw their funds, the bank is put at risk of failure and confidence in the system is shaken — leading more people to rush to make withdrawals at other banks and starting the process all over again.

When customers know their funds are safe because the government insures the money, it’s less likely they’ll run to pull their money out just because of bad economic news. It’s the FDIC and the NCUA that give Americans the confidence to deposit their hard-earned cash.

Bottom line

The NCUA allows consumers to trust credit unions across the United States. However, not every credit union is insured or regulated by NCUA. Some state-chartered credit unions have private insurers, which means deposits are protected — but not by the full faith and credit of the United States government.

If you want to make sure your credit union is protected by the NCUA Share Insurance Fund, look for the NCUA designation or visit the NCUA’s online locator. When you find it, you’ll know the National Credit Union Administration is looking out for your money.

About the author: Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbo… Read more.