With all the recent talk about the financial crisis focused mostly on banks and how banking customers are affected by the $700 billion rescue package, we received a flood of e-mail wondering why we were neglecting credit unions in our coverage.
Reader Frank Margolis of Baltimore said, "I read your interesting article about changes in FDIC but was wondering about those of us with money in credit unions that are supposedly covered by a different insurance organization? Did the recent changes in coverage apply to that agency as well?"
Richard T. Webb, president and chief executive of Atlantic Financial Federal Credit Union in Hunt Valley, scolded us in his e-mail, saying, "OK, now let's see an article on the NCUSIF (National Credit Union Share Insurance Fund). While it provides the same coverage as FDIC, it is stronger than the FDIC and always has been."
Please forgive us for causing credit union customers to feel distressed and ignored. Most of the questions we've received lately have come from banking customers, but this does not mean that the recent moves to shore up the economy by Congress and President Bush have overlooked credit unions.
Indeed, while the Federal Deposit Insurance Corp.'s insurance fund covers banking depositors, there is also a National Credit Union Share Insurance Fund (NCUSIF) that was created by Congress in 1970 to insure dollar-for-dollar member deposits up to the $100,000 federal limit in the event of a credit union failure. Administered by the National Credit Union Administration, the NCUSIF is backed by the "full faith and credit" of the U.S. government.
With the Emergency Economic Stabilization Act of 2008 that just passed, the coverage limit on credit union deposit insurance has also been raised to $250,000 and that limit will stay in effect until Dec. 31, 2009, like that of the FDIC's increased insured deposit limit.
As members of a federally insured credit union, customers do not pay directly into the fund for insurance protection. As with FDIC-insured deposits, credit union deposits are protected if customers are mindful about keeping their money in different categories of ownership. These categories include the four most common, which are single-owner accounts, retirement accounts, joint accounts, and revocable trust accounts.
In other words, if you have a regular share account and an individual retirement account at the same credit union, the regular share account is insured up to $250,000 until the end of next year and the IRA is separately insured up to $250,000. However, if you have a regular share account, a share certificate and a share draft account all in your own name at the same credit union, those accounts will be added together as one category and insured up to $250,000.
By law, federal credit unions and any state-chartered credit union insured by the fund are required to maintain 1 percent of their deposits in the NCUSIF. Also, according to the law, if the equity ratio of the NCUSIF falls below 1.20 percent, the NCUA is required to assess a premium. The FDIC recently announced that it would raise the premium it charges banks.
The NCUA's board has charged a premium only once, when three large New England credit unions failed in 1992 causing a substantial increase in insurance losses.
"Given the volatile environment and uncertainty in the markets, some of your readers may conclude that their credit union funds are somehow uninsured," said John J. McKechnie III, director of public and congressional affairs at the NCUA. "At this juncture, the NCUSIF equity ratio is 1.22 percent, so no premium is indicated. Although we have seen isolated, but not systemic problems in the credit union industry, NCUA is very aware of the continuing volatility of the financial marketplace.
"We will continue to closely monitor the health of insured credit unions and the level of the NCUSIF," McKechnie said, "and will take all necessary steps to protect consumer deposits in federally insured credit unions. "
No federal tax dollars have ever been placed in the credit union financial fund, the NCUA says, and no member has ever lost money insured by the NCUSIF. To learn more about credit unions and the NCUSIF, go to www.ncua.gov.