Federal vs. Non-Federal
Choosing a financial institution can feel overwhelming. There are banks, credit unions, and online lenders… the options seem endless! Today, we’ll focus on credit unions, specifically the difference between federal and non-federal ones. Understanding these distinctions can help you pick the credit union that best suits your needs. Just the other day I was in a discussion about the credit union industry and I was asked if there was a difference between federal and non-federal credit unions. Since we write these blogs to assist credit unions and to advance the credit union movement I thought it would make a good blog post for you. So let’s look at demystifying credit unions when it comes to their “federal” status.
So, what’s the big difference?
- Charterer: Federal credit unions receive their charter, or permission to operate, from the National Credit Union Administration (NCUA). Non-federal credit unions are chartered by individual states.
- Not all states have charter programs or regulations on credit unions and so these states must be federally chartered. The states are Arkansas, Delaware, South Dakota, Wyoming, and the District of Columbia.
What does this mean for you as a member?
- Regulation: Both federal and non-federal credit unions are heavily regulated, ensuring your deposits are safe and secure. Federally chartered institutions are overseen by the NCUA, while state-chartered ones follow regulations set by their respective state. The NCUA’s regulations are generally considered more stringent.
- Deposit Insurance: Both federal and most state-chartered credit unions offer deposit insurance, typically up to $250,000 per depositor. This means if the credit union fails, your deposits are insured by the government. However, it’s always wise to double-check the specific coverage limits with your chosen credit union.
- Membership: Federal credit unions typically have broader membership requirements, often based on geographic location or employer affiliation. Non-federal credit unions may have more specific requirements, like belonging to a certain profession or organization.
Beyond the Basics
While regulations and chartering differences are important, the core function of both federal and non-federal credit unions remains the same: serving their members. Here are some additional factors to consider:
- Products and Services: Both types of credit unions offer a variety of financial products, but some may specialize in certain areas, like loans for small businesses or car purchases. Research what each credit union offers to see if it aligns with your needs.
- Fees: Compare fees associated with accounts, transactions, and services at both federal and non-federal credit unions you’re considering.
- Customer Service: Does the credit union prioritize member service? Look for reviews and ask existing members about their experiences.
Advantages
There are some advantages to both types, but one notable difference for state charters is that they are not beholden to the maximum interest rate regulations that federal credit unions are limited to. Some states have higher limits on the interest rate charges or no limits at all. There is also something to be said of the working relationships between the state regulatory authorities and the credit unions they work with. Some state-chartered credit unions may carry deposit insurance backed by the full faith and credit of the U.S. Government. Some states even require state-chartered credit unions to be insured by the federal government. For those who qualify the NCUA can insure them.
Federal credit unions are insured by the National Credit Union Share Insurance Fund (NCUSIF), which is managed by the NCUA to insure the member share accounts that are held at federally insured credit unions. This is backed by the full faith and credit of the federal government similar to what the Federal Deposit Insurance Corporation (FDIC) does for banks.
Some credit unions may change their charter from federal to state, or vice-versa. For example, if a federal credit union finds it can have more flexibility with a state charter when it comes to expanding its field of membership. This generally requires an application process with various state and federal organizations and a vote of the membership to approve it.
The Bottom Line
Federal and non-federal credit unions both offer a safe and member-owned alternative to traditional banks. Understanding the key differences in chartering and regulation can empower you when discussing credit unions with others, especially those you want to join the credit union movement.
