Federal Deposit Insurance: NCUA & FDIC
Published June 24, 2016 | Updated July 6, 2016
Great news for those with checking or savings accounts at federally insured credit unions or banks: You’re managing your funds in one of only 113 countries worldwide to offer free deposit insurance of up to $250,000.
Thanks to forward-thinking governmental officials who acted many decades ago, such coverage is now applied free of charge to most checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CD) or negotiable order of withdrawal (NOW) accounts. Further, most financial institutions today are NCUA or FDIC-insured in order to compete effectively.
Banking customers in the U.S. have enjoyed such privileges since the Federal Deposit Insurance Co. was founded in 1933 in response to thousands of bank failures across the U.S. in the 1920s and 1930s. Credit union clientele had to wait several decades beyond that, receiving similar coverage after the National Credit Union Administration set up shop in 1970. Today, both kinds of institutions are equally protected.
History of Federal Deposit Insurance
The concept of credit unions can be traced back to the first credit society in southern Germany in 1849. In 1908, Edward Filene of Filene’s Department Store began advocating for U.S. credit union legislation. The nonprofit money cooperatives gained popularity in the 1920s as a way to meet consumer demand for inexpensive credit so families could buy larger-ticket items like cars and appliances; at the time, banks were not as receptive to such requests.
The concept of federal deposit insurance, and establishment of the FDIC itself, were enacted in the first months of 1933 in response to the panicked bank withdrawals that crippled the nation’s banking system (flashback to the run-on-the-bank scene in the 1946 movie “It’s a Wonderful Life”). The government plan involved reorganizing salvageable institutions among the nation’s more than 9,000 closed-down banks.
FDR and other federal officials originally opposed such insurance, arguing it would be overly expensive and unfairly subsidize badly managed banks. But they were swayed by public opinion. The initial insurance program allowed each depositor $2,500 in coverage and was funded with $289 million in government loans, effectively restoring consumer confidence. FDR authorized federally chartered credit unions the following year.
Surprisingly, the NCUA wouldn’t be founded for several decades. After the number of credit unions nationwide surpassed 10,000 in 1970, the independent federal agency was funded by an act of Congress and empowered to offer insurance equal to the FDIC’s.
The FDIC and NCUA
Today, the FDIC and NCUA both serve as authorities over their industries, governing the terms of insured accounts for all members while monitoring and addressing related financial issues. The agencies also take action in the rare event of bank or credit union failures, acting quickly to protect deposits by coordinating sales or mergers, or reimbursing depositors directly from government funds.
The NCUA is headed by a three-member board appointed directly by the U.S. president. Today it monitors more than 7,000 credit unions serving more than 100 million customer accounts. The FDIC is managed by a five-person board appointed by the president and these days supervises more than 4,500 banks for operational safety and soundness — more than half the institutions in the banking system.
More About Credit Unions
Curious about the growing credit union movement? More and more people are joining credit unions every day, preferring to do their banking with a member-owned financial cooperative instead of with traditional banks. Learn more here about how Credit Unions Offer the Highest Savings Rates, or check out our list of reasons why Credit Unions Are the Best Place for Your Savings. Or if you're ready to become an Amplify member and start earning better APYs on your savings, you can get started here.