Wednesday, July 16, 2008

Is Your Money Safe?

As the Feds shut down IndyMac customers lined up to withdrawal their money. Yes friends it's an old fashioned run on the bank. But since the creation of the FDIC in 1933 we have seen such a sight.

When banks fail the FDIC steps in to run the business as usual in an attempt to keep the FI stable while Feds seek a buyer for the FI. Still it's not unusual that customers get nervous over instability and pull out their funds. That's how it works for banks, but what about Credit Unions?

The FDIC only covers FI's that qualify as "banks and thrift institutions". In 1934, President Roosevelt signed the Federal Credit Union Act into law authorizing the formation of federally chartered credit unions in all states. The purpose of the federal law was to make credit available and promote thrift through a national system of nonprofit, cooperative credit unions.

The distinction is that Credit Unions are nonprofit, cooperatives and were self-regulated. It wasn't until the 1970's that the same level of federal protection given to bank customers was extended to credit union members with the creation of the NCUA.

Both the FDIC and NCUA collect money from the FIs they regulate for their insurance funds. Like the FDIC, NCUA guarantees that deposits are insured up to $100,000 and retirement accounts up to $250,000.

So is your money safe? Yes, Yes, and probably.
First , yes, your credit union is likely to be safer than the big mortgage player IndyMac. Its just credit union nature to not be involved with the risky mortgage practices that brought down IndyMac. But that's not a guarantee and anything could happen.

Yes, your money is guaranteed as stated above. If your credit union should fail the NCUA will make your money available.

But if you've got over $100,000 deposited at a single institution you probably want to review your security strategy.

Here's what the NCUA says:
Generally, if a credit union member has more than one account in the same credit union, those accounts are added together and insured in the aggregate. There are exceptions, though. You may obtain additional separate coverage on multiple accounts, but only if you have different ownership interests or rights in different types of accounts and you properly complete account forms and applications. For example, if you have a regular share account and an Individual Retirement Account (IRA) at the same credit union, the regular share account is insured up to $100,000 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, you will not have additional coverage. Those accounts will be added together and insured up to $100,000 as your individual account.

When the NCUA was created it was modeled off the FDIC. When the FDIC was created $100,000 was a whole lot of money. These days its not really that much. So it's not impossible for your aggregated accounts to reach that amount. It could be time to review your account strategy.

Really reviewing your deposit strategy (or creating one) doesn't depend on whether your money is at a credit union or bank. Both the FDIC and NCUA are operated by the government and have similar responsibilities.

The good news? A CNN poll asked online readers if they felt that there money was safe--66% responded a strong yes. Public opinion is a powerful force.

1 comment:

  1. Celeste, this is a great post. I was going to do a similar post for the Boardcast. I think I'll do a link to yours since you've done such a thorough job explaining somehting I'm sure our members are wondering about.