A credit union is a convenient place for your banking needs, including checking and savings accounts and auto loans. But while the services you'll find may be similar at federal- and state-chartered credit unions, the ways these institutions are insured are different. Here are some of the distinctions between them.

Federal

Federal credit unions are insured by the National Credit Union Share Insurance Fund. Despite their names, neither these institutions nor the insurance fund is operated or administered by the federal government. Instead, the federal government backs the insurance fund, which protects loans and the money in members' checking or savings accounts. The insurance fund covers deposits of up to $250,000 per member.

Because of these protections, federal credit unions offer a higher level of benefits than state-insured institutions. In addition to the insurance coverage on member accounts, federal credit unions are subject to a loan interest rate ceiling, which is about 18% for most loans. Federal institutions are also free to operate branches and ATMs in states that do not have specific credit union charters. For loan customers, federal unions are not subject to state laws that impact interest rates, finance charges, late penalties, or other terms and conditions, offering the customer greater flexibility and convenience.

State

State credit unions are backed by private insurance companies, not the federal government. They must adhere to state laws and regulations, which can be notably different than the rules at the federal level. You need to contact a state credit union to find out how much of their deposits are covered by non-federal share insurance. The rate will differ from one insurer to the next and one state credit union to the next.

To determine whether a credit union is state or federally backed, look at the name. Federal institutions always include the word "federal" in their name, while state institutions cannot legally use this title. Also, the physical location and website of a federal credit union will display the official sign of the National Credit Union Administration.

To start enjoying the benefits of a federal credit union, contact Chattanooga First Federal Credit Union. Since 1961, they have been serving the Hamilton County, TN, area. They provide a variety of financial solutions, including bank accounts, loans, and CDs. Call (423) 267-7621 or visit them online to learn more about their services or to become a member.