Are Credit Unions Safer for Your Money Than Banks?

Are Credit Unions Safer Than Banks?

While technical things like the level of deposit insurance is the same for credit unions and banks, there are important differences when it comes to deciding where to safeguard your hard-earned money.

The good news? The way credit unions focus on serving their members/owners can make them safer than regular banks.

Who insures banks?

Deposits in banks are insured by the Federal Deposit Insurance Corporation (FDIC). This coverage extends to all deposits up to $250,000. So if anything happens to the bank, the FDIC will repay you up to that amount.

Who insures credit unions?

Deposits in credit unions, like orsa credit union, are insured by the National Credit Union Administration (NCUA). This organization also covers deposits up to $250,000 in the same way as the FDIC. So if you have $255,000 in an account should the unlikely happen, the NCUA will pay you $250,000.

Plus, some credit unions go a step further. Depending on how your account relationship with orsa credit union is structured, accounts are federally insured up to at least $250,000 by the National Credit Union Share Insurance Fund (“NCUSIF”). In addition, we insure these accounts up to an additional $100,000 by ESI. And if that isn’t enough, we’re even able to offer insured peace of mind for millions of dollars on up with Extended Share Insurance Accounts through our partnership with ModernFi. Get the full story on orsa extended share insurance and accounts here.

Is money safer in a credit union?

In terms of legal protections ensured by the federal government, there’s no difference between a bank and credit union. But beyond that basic fact, the way credit unions actually operate and invest tends to make them safer.

While bank or credit union failures are both rare, the data shows that banks fail more often. Since 2000, an average of 23 banks fail per year, compared to just 6-7 credit unions since 2017. The reason is that credit unions tend to be more conservative with their lending, investments, and priorities, making them more resilient when things go wrong.

Why are credit unions considered safer than banks?

Because they are for-profit institutions that need to deliver returns for their investors and shareholders, banks tend to be more risk tolerant. For example, banks are far more likely than credit unions to invest in commercial real estate, a sector that can be hit hard by financial downturns.

Not-for-profit structure

Whether they’re privately owned or listed on the stock exchange, banks are for-profit institutions. They generally face serious pressure to deliver financial returns each quarter. To make that happen, they need to take more risks and get more returns from each customer through things like fees.

Credit unions, by contrast, are not-for-profit institutions. But more than that, they’re For-Impact. Their owners are their members and the profits they earn are reinvested in services to those members and their communities. So instead of being driven by incentives that point to growth at all costs, credit unions are incentivized to maximize stability.

For members of credit unions like orsa, this translates into a reduced risk. But more than that, it means a greater focus on delivering value to you as a member and the community you live in. That includes better rates, more personalized services, loans and investments focused on local businesses, dividends paid to members, and much more.

Conservative lending practices

The more conservative lending practices of credit unions comes from a few factors. First, because they’re not-for-profit organizations, they favor stability over high-risk high-reward investments. So they’re less likely to invest in a major real-estate development deal 1,000 miles away and more likely to loan money to a local business.

Credit unions also tend to invest locally based on deep understanding of that market and personal relationships built up over years. In the same way you understand the town you’ve lived in your whole life better than someplace on the other side of the country. Taken together, this more conservative approach translates into reduced risk for you as a member.

More stability, less risk

When it comes to managing a bank, needing to ensure ever-growing profits come each and every quarter creates immense pressure. Those banks may need to skip investments that won’t earn money quickly enough or in great enough numbers. So instead, money gets invested in riskier projects likely to bring bigger returns faster.

Credit unions work differently. Their focus is on long-term impact for their communities, not short-term profits for their shareholders. This mindset shift enables them to invest beyond the short-term, leading to a more stable and less risky set of investments.

For members of credit unions like orsa, this means the profits of the institution tend to go towards worthy projects that major banks may ignore because they’re too small or won’t earn enough profit. It also means you’re less exposed in case a major economic downturn hits.

Are credit unions safer than banks during a financial crisis?

Data shows that credit unions are safer than banks during a financial crisis. One study looking at the Great Recession of 2007-2009 found that 7.3% of bank mortgages were delinquent compared to just 2.0% of those from credit unions. That helps explain why more than 5x as many banks failed during this period as credit unions. The banks were simply far more exposed to risky investments and paid the price.

While deposits in both banks and credit unions are insured up to $250,000 any money above that is at risk when a financial crisis occurs. That’s why banking with a credit union adds some additional safety, especially when economic times are tough. It’s also why, at orsa, we offer Extended Share Insurance Accounts that give you peace of mind far beyond the norm, safeguarding up to millions dollars in one place.

Should I move my money to a credit union?

Choosing where to keep your money shouldn’t be a quick decision. There’s a lot to consider.

First, there’s the lower risk profile as discussed above, particularly if you have over $250,000 in an account. But even for people with far less than that, credit unions offer higher than average rates for checking and savings accounts. Over time, even small differences can really add up, helping your money grow.

Credit unions also tend to offer more personalized services, better rates on loans and mortgages, and members-only perks like financial education tools and workshops. At the end of the day, credit unions like orsa work with you to figure out how to make your wealth grow to create a better financial future.

Why local matters for financial safety

Credit unions are, by their nature, far more locally focused than most banks. That may not sound particularly important, but it actually has huge benefits for their members. A local focus enables credit unions to really get to know their communities on a deep level. Armed with that knowledge, they tend to make more sustainable investments that fail less often.

Those lower default rates then translate into lower risk for the entire credit union, which enables them to weather difficult financial times better than most banks. But beyond risk, focusing on the local community means credit unions build stronger relationships with their members and tend to invest locally. So by banking with a credit union, you’re also helping local small businesses, homeowners, nonprofits, and more get access to the credit they need to thrive.

Maximize your financial peace of mind with orsa

At the end of the day, being a credit union member means greater peace of mind alongside benefits like better loan rates, savings rates, and services. Feel better about your money because it’s not just insured by the Government, it’s having an impact in your community. At orsa you’re more than a number on a spreadsheet. We walk with you to help you make better financial decisions and build a foundation for a better future.

Become a member today and see why so many Michiganders put their trust in orsa credit union.