Deposits
1. Do community development credit unions offer insurance on deposits?
Yes. More than ninety percent of CDCUs are federally insured; the rest are insured by private insurers. Before you invest, inquire which coverage the credit union has.
2. Are all deposits in CDCUs insured?
All member deposits are insured, subject to the limits discussed below. If a credit union is officially designated 'low-income' by the National Credit Union Administration (NCUA), it may also accept a certain quota of fully insured non-member deposits. Before you invest in a CDCU, ask the manager to confirm: (a) that a credit union has been designated a low-income credit union, and (b) that it has not exceeded its quota of non-member deposits.
3. Which federal agency insures credit unions?
The National Credit Union Administration (NCUA), a U.S. government agency, insures all federally chartered credit unions and many state-chartered credit unions through its Share Insurance Fund (NCUSIF). It also regulates and supervises these credit unions.
4. What is the insurance limit?
The basic insurance is $100,000 per depositor; however, accounts maintained in different forms of ownership (joint accounts, trust accounts, etc.) may be eligible for additional insurance. If you wish to invest more than $100,000 in one CDCU, request detailed information from the credit union or from the National Federation of CDCUs.
5. Is the National Credit Union Share Insurance Fund (NCUSIF) similar to the FDIC, which covers banks and savings and loan institutions? How strong is it?
The deposit insurance provided by the NCUSIF, like that provided by the FDIC, is backed by the full faith and credit of the United States government. Like the FDIC, the NCUSIF provides each depositor with insurance up to $100,000. Not one penny of insured savings has ever been lost by a member of a federally insured credit union.
6. What happens to my deposit if the credit union makes bad loans and goes out of business?
In some cases, the credit union would be merged into another institution; your deposit would be transferred to that institution, and would remain insured. If a merger is not possible, NCUA would pay off insured depositors after closing the credit union.
7. Can I expect interest on my savings account at a CDCU?
Most all CDCUs do offer a return on your savings. Because credit unions are cooperatives, owned by their member-shareholders, you receive a 'dividend,' rather than interest.
8. What dividend rate do CDCUs offer?
Each CDCU has a different dividend policy. Some CDCUs offer rates which are quite comparable to banks; however, credit unions which are relatively new, small, or serve the poorest communities, may offer lower rates.
9. Is the dividend on my deposit insured?
By law, dividends are not insured either by the NCUSIF nor by any private insurer.
10. I'm willing to accept a below-market rate of return on my deposit. Can I obtain a tax deduction for the income that I have foregone?
No, the IRS does not allow this type of deduction.
11. Can credit unions accept donations?
Yes, they can, but donations are not tax-deductible, since CDCUs are not classified as charities. However, many CDCUs have affiliations with other non-profit charitable organizations, and you may be able to make a tax-deductible donation to one of these organizations.
12. When I make a deposit in a CDCU, how are my funds used?
CDCUs use deposits to make loans within low-income communities. Typical loan purposes include education, medical needs, small and minority business, housing rehabilitation, and home mortgages.
13. Can I stipulate how the funds should be used by the CDCU?
Some credit unions may allow you to 'target' your deposits to support a certain category of lending by a CDCU--for example, for home rehabilitation or some other good purpose. But you can not ensure that funds go to a particular borrower.
14. Do credit unions offer all the services and types of accounts, which banks provide?
Depending on the size of the credit union and the needs of its membership, a CDCU may offer a limited or full range of services. Some CDCUs offer IRAs, checking accounts ("share drafts"), certificates of deposit (“share certificates”), vacation club accounts, and other services. Other CDCUs may offer only regular share accounts ("passbook savings").
15. Are any particular types of accounts more likely to receive dividends?
Yes. If you commit your funds for a certain period of time (usually, six months or longer) by purchasing a share certificate, you have a higher degree of assurance that you will receive the projected dividend rate. Sometimes, the rate is higher than that offered for day-to-day, or passbook-type accounts.
16. If I locate a CDCU in my neighborhood, can I become a member even though I don't qualify as 'low-income'?
If you live or work in a neighborhood served by a CDCU, you are usually eligible for full membership--including the right to vote and to borrow from the credit union--regardless of your income.
17. How can I invest if there is no CDCU in my neighborhood?
If there is no CDCU near you, or its services do not meet your needs, you may wish to place your funds with a CDCU elsewhere as a “non-member depositor.” (See question 2 for a description of insurance on non-member deposits.) Non-member depositors may not vote in the credit union's elections.
18. How can I locate a CDCU to invest in?
If you wish to invest in a CDCU, the Federation can help you locate one. We are best able to assist you if you can specify the approximate amounts, terms, and type of deposit you prefer, along with any other criteria you may have.
19. My institution would like to develop a program of investing in CDCUs. How can the National Federation help?
The National Federation can consult with you on the development of a program, which meets your financial and social concerns.
Institutional investors have three options. They can make deposits directly in CDCUs. Alternatively, they can make a loan to the National Federation; we, in turn, use the funds to create a diversified portfolio of insured deposits in CDCUs, which meet the investor’s interests and criteria.
Or thirdly, they can enter into a Nominee Agreement through which they make funds available to the Federation. The Federation makes deposits in CDCUs as Nominee for the institution.
Loans & Grants
20. Does the Federation accept loans and for what purpose do they use them?
Yes, the Federation accepts loans and we use the money to fund secondary capital loans, micro-enterprise deposits, PRIDE deposits, and other deposits. We have found that investors are willing to support these programs. If you are interested in learning more about these programs, please contact us. (Please see our Financial Products for a description of each of our current product offerings).
21. Does the Federation support its Community Development Investment Program with grants as well as loans and deposits?
Yes. We receive grants. These funds support our own grants as well as other programs. Presently the Federation gives equity grants to CDCUs. We have also funded technology and Individual Development Account grants. (Please see Financial Products for more information).
