How safe is a credit union in a recession?
Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money. Both credit unions and banks have deposit insurance and are generally safe places for your money.
Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.
However, because credit unions serve mostly individuals and small businesses (rather than large investors) and are known to take fewer risks, credit unions are generally viewed as safer than banks in the event of a collapse.
The pros of credit unions include better interest rates than banks, while the cons include fewer branches and ATMs.
If you have money in a checking, saving or other depository account, it is protected from financial downturns by the FDIC. Beyond that, investment products are more exposed to risk, but you can still take some steps to protect yourself.
If the bank fails, you'll get your money back. Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch. Credit unions are insured by the National Credit Union Administration.
National Credit Union Administration (NCUA) credit unions had seven conservatorships/liquidations in 2022 and two so far in 2023.
bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.
Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.
For decades, bankers have objected to the tax breaks and sponsor subsidies enjoyed by credit unions and not available to banks. Because such challenges haven't slowed down the growth of credit unions, banks continue to look for other reasons to allege unfair competition.
Could a credit union collapse?
Causes of credit union failures
During and immediately following the Great Recession, credit union failures were more common than they are now, as were bank failures. One Arizona institution that failed in 2010, AEA Federal Credit Union, was able to recover after working five years with federal regulators.
Federally insured credit unions and banks are both safe places to keep your money. The National Credit Union Administration protects deposits (within certain limits) at insured credit unions and the Federal Deposit Insurance Corp. protects deposits (within certain limits) at insured banks.
The downside of credit unions include: the eligibility requirements for membership and the payment of a member fee, fewer products and services and limited branches and ATM's. If the benefits outweigh the downsides, then joining a credit union might be the right thing for you.
Treasury Bonds
Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments. That's because they are backed by the U.S. government, which is deemed able to ensure that the principal and interest are repaid.
Recessions can impact your savings in many different ways. Lower interest rates, stock market volatility, and potential job loss can drain your savings. Diversifying your investments, building an emergency fund, and opening a high-yield savings account can help protect your savings.
Although the government has stepped in to contain the damage caused by the bank failures and ensure account holders can access their funds, inflation and interest rates remain high, so the threat of a recession persists. Generally, money kept in a bank account is safe—even during a recession.
Since credit unions' missions are to serve their local communities, they're more likely to be in your corner during economic uncertainty compared to a big national bank. Also, a 2022 report by the Ascent stated research shows credit unions are less likely to fail compared to banks during recessions.
Rising default rates during challenging economic times contribute to financial stress for credit unions. The ongoing wave of technology and digital transformation in the financial industry presents another formidable challenge.
Dec. 31, 2008 – Nineteen consumer-owned credit unions fail in 2008, resulting in a loss of $232 million to the National Credit Union Share Insurance Fund.
FDIC Insurance
Most deposits in banks are insured dollar-for-dollar by the Federal Deposit Insurance Corp. This insurance covers your principal and any interest you're owed through the date of your bank's default up to $250,000 in combined total balances. You don't have to apply for FDIC insurance.
What is the largest credit union in the United States?
Who is the largest credit union? Navy Federal is the country's largest credit union with around $168.4 billion in total assets and 13.2 million customers at the end of 2022, according to the latest data from the NCUA.
If you're looking for a short answer, you'll be happy to know that we're not making you read the whole post: Credit Unions and banks are roughly identical in safety because deposits at both are insured by the Federal government to $250,000.
Failed banking institutions - the one number that continued to grow all year. After a year in which only three banks closed (and none the two years prior), 2008 saw 25 banks and 15 credit unions shuttered.
What Are the Major Advantages of Credit Unions? Credit unions typically offer lower closing costs for home mortgage loans, and lower rates for lending, particularly with credit card and auto loan interest rates. They also have generally lower fees and higher savings rates for CDs and money market accounts.
Better interest rates: Credit unions typically offer higher interest rates on savings accounts because they have lower overhead costs than banks. Similarly, they offer lower interest rates on loans. Customer service: Credit unions pride themselves on offering better customer service than banks.
