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Can credit unions fail?
Bank failures were back in the headlines in 2023. In the wake of several major bank closures, some consumers have been left wondering if they're better off moving their money from banks to credit unions.
Generally speaking, credit unions are a safe bet. Like banks, credit unions can fail, but their failure is far less common and the financial fallout is mild by comparison.
In 2023, for example, five bank failures represented a total of $549 billion in assets, and the First Republic Bank closure in 2024 impacted $6 billion alone. During that same period, four credit unions failed, representing roughly $74 million in assets combined.
Read more: 7 credit unions anyone can join
Can credit unions fail?
It's uncommon for credit unions to fail, but it does happen.
In 2023, there were more than 4,600 federally insured credit unions in the U.S. and three of them failed: Yonkers Postal Employees Credit Union, Inter-American Federal Credit Union, and Valwood Park Federal Credit Union. Those three financial institutions represented a combined total of 3,779 members.
According to the National Credit Union Administration (NCUA), which examined the causes for 16 credit union failures that took place in the past five years, the most common causes are ineffective management or lack of oversight and insider fraud.
As a credit union member who's concerned with potential failure, there are more outward warning signs you can look for, including a combination of the following:
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Layoffs
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Multiple branch closures
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Fewer available services
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Rates aren't competitive
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Increased fees on accounts
You can also check to see if the NCUA has taken enforcement actions against your credit union or sent them any alert letters.
Failed credit unions (since 2020)
What happens if a credit union fails?
If the credit union fails, a few different things can happen. Failed credit unions can merge with other financial institutions or be sold to other credit unions that take over management of your accounts, including deposits and loans. Or the NCUA will close the credit union and ensure you get your insured deposits back.
What happens to your deposits?
If your credit union closes and you have NCUA-insured accounts with them, you'll receive a check for your covered deposits — including the principal and interest. Usually, you’ll receive your funds within five days of the credit union's closure. NCUA insurance typically covers the following:
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Individual accounts up to $250,000 each
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Joint accounts up to $500,000 combined ($250,000 per account owner)
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Formal or informal revocable trusts up to $250,000 per beneficiary for each owner
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IRAs up to $250,000 combined
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Keogh accounts up to $250,000 combined
To get a better idea of which of your deposits are covered, you can use the NCUA's Share Insurance Estimator.
What happens to loans and credit cards?
Even if your credit union closes, you still have to pay back your debt. Until you receive written instructions from the NCUA or the acquiring credit union, you'll need to continue sending payments just as you did before the closure. If you fail to pay, the NCUA might deduct the debt balance you owe from the balance in your deposit account(s).
Are credit unions safer than banks?
While banks and credit unions offer similar federal protections for your money, credit unions are generally safer than banks.
One reason is that they're far less likely than banks — particularly large banks — to experience bank runs. Since a much larger portion of credit union deposits are insured, customers are less likely to panic and withdraw cash en masse.
Uninsured deposits are such a big factor in bank runs that they're considered one of the main drivers for the Silicon Valley Bank and Signature Bank failures in 2023. While just 10% and 5% of the two failed banks' deposits were insured, respectively, 92% of credit union deposits were insured.
Small banks can also be a risk because they're more heavily invested in an asset that's been losing value: commercial real estate (CRE). CRE loans made up around 29% of small banks' assets in 2023, and according to a report from the Office of Financial Research, about 278 banks were vulnerable as a result. At present, several large banks have 10% or more of their assets invested in CRE, including KeyBank, East West Bank, Santander, Citizens Bank, and Capital One.
