NCUA-Insured Institution: What It Is, How It Works

What Is an NCUA-Insured Institution?

An NCUA-insured institution is a financial institution that is a participant in the National Credit Union Administration (NCUA) program. Most NCUA-insured institutions are federal- and state-chartered credit unions and savings banks.

Accounts at NCUA-insured institutions are usually insured through the National Credit Union Share Insurance Fund (NCUSIF). The NCUA operates with a three-member board of directors and runs as an independent federal agency that sets policy.

How a NCUA-Insured Institution Works

Accounts insured in NCUA-insured institutions are savings, share drafts (checking), money markets, share certificates (CDs), Individual Retirement Accounts (IRA), and Revocable Trust Accounts. The maximum dollar amount that is insured in an NCUA institution is $250,000 per institution. In other words, a depositor with $1 million can fully insure this amount by depositing $250,000 in four different NCUA institutions.

The National Credit Union Association (NCUA) is equivalent to the Federal Deposit Insurance Corporation (FDIC). The only differences are that the NCUA deals only with credit institutions and that the NCUA uses the National Credit Union Share Insurance Fund (NCUSIF), while the FDIC uses the Deposit Insurance Fund.

A History of NCUA Insurance

Government oversight of credit unions and protection for funds deposited in credit unions began in the wake of the Great Depression when President Franklin D. Roosevelt signed the Federal Credit Union Act in 1934. Various regulatory bodies oversaw the United States credit unions until the creation of the NCUA. The NCUA was established in 1970, which is when Congress also established the NCUASIF to protect deposits at credit unions around the nation.

Economic upheavals, including the savings and loan crisis of the 1980s and 1990s and the Great Recession of 2008-2009, threatened the security of the NCUSIF. NCUA-insured institutions collaborated to recapitalize the NCUSIF in 1985 by depositing one percent of their shares into the fund. During the Great Recession, the NCUA worked with the U.S. Treasury Department and Congress to protect the fund and NCUA-insured institutions by creating the Temporary Corporate Credit Union Stabilization Fund.

Nevertheless, a number of corporate and consumer-owned credit unions failed during the Great Recession. The NCUA adopted a red flag system to identify threatened member institutions before their financial status became untenable, including a 12-month examination cycle for NCUA-insured institutions.