Credit Union Version of FDIC Raised to $250,000

All the recent talk of banks raising their insurance limits to $250,000 per named account has obviously caused questions for the almost 86 million individuals that use a credit union to conduct their financial transactions. The good news is that the Senate has amended the Federal Credit Union Act to reflect the same $250,000 increase in coverage as banks for those citizens that use a local credit union. The National Credit Union Share Insurance Fund which is backed by the United States government is the equivalent of the Federal Deposit Insurance Corporation (FDIC) which insures bank accounts.

The exact language is covered on page 92 of the Senate version of the ''Emergency Economic Stabilization Act of 2008'' and refers specifically to credit union accounts and account holders. One should keep in mind that this insurance which is the same for bank account holders is only for a one year period and expires on December 21, 2009. A depositor whether in a bank or a credit union should keep this in mind if they choose to make a long term deposit in an instrument such as a Certificate of Deposit that might extend beyond the time which this bill covers.

Credit Unions are much different than banks, but offer most of the same services. Essentially a credit union is owned by the their account holders who have a voice in how the institution conducts business. Credit unions are not for profit businesses and are exempt from state and federal income taxes, however taxes must be paid by shareholders on any interest received which is the same as for bank customers. Deposits are referred to as "shares" and depositors have "share accounts". A credit union member can write checks on their share account, own Certificates of Deposit, borrow money for a home, car or other approved purposes and essentially carry out all their banking needs in an institution where they participate in decision making. Credit unions do occasionally fail just like banks, but the number of failures is much lower according to the National Credit Union Administration, a US Government agency.

There is considerable animosity by banks towards credit unions as credit unions typically offer slightly higher interest rates for the deposits of account holders and slightly lower rates for borrowers than a local or even nationwide bank. A credit union obviously has a much lower financial reach than regional banks and is generally focused on local community economic activity. Since credit unions often compete with local banks, one can see the potential causes for the animosity that occurs.