Ask Money

Credit unions

Chris Farrell Mar 10, 2009

Question: My sister and I are having differences of opinion in investing our Father’s money. He is in Assisted Living, age 93. Right now, the money is in U.S. Treasuries and earning very little interest. My sister wants to take most of the money ($150,000) and put it into CDs with SchoolsFirst Federal Credit Union which would earn 2.5%. I want his money to be safe and wonder about the financial footing of this credit union. Supposedly it is sound. Any suggestions? An avid listener of Marketplace Money on Saturday mornings. Linda, Tulsa, OK

Answer: I’m not sure I want to come between you and your sister, but we do get a lot of questions about the safety of credit unions. It’s impossible for outsiders like you and me to judge the financial soundness of any bank or credit union. In the jargon of Wall Street, financial institutions are “black boxes.” We can’t figure out what’s going on inside (and it turns out even the insiders couldn’t figure it out).

What we can do is make sure the financial institution is backed by the FDIC or its credit union equivalent, the NCUSIF. That stands for the National Credit Union Share Insurance Fund. It’s an arm of the National Credit Union Administration or NCUA.

Enough with the acronyms. I checked online, and SchoolsFirst is a federally insured credit union. The rules are the same as the bank FDIC limits: Deposits are insured up to $250,000. So, the money your father has would be fully covered.

You can rest easy if you put the money into a federally insured credit union. What if the credit union failed? (To be clear, I’m not saying it will or is even at risk of failing.) Your money is safe. The worst that could happen to it is that you can’t get access to the money for a few hours or perhaps days (and I’m spinning out the worst case scenario here). The other risk is that the terms of the CD could be changed if the credit union was seized by the regulators and sold to another institution. The principal is completely safe, of course, but sometimes the interest rate on the CD is cut.

In a sense you can’t go wrong so long as you stay short and stay safe. While I was writing this I wondered if a good solution was to decide on a mix, keeping some in short-term Treasuries, and adding some short-term CDs and savings account.

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