Many depositors need to insure their money beyond the $250,000 typically provided by the NCUSIF. This is true across member segments, including businesses, municipalities, non-profits, high-net worth individuals, and others.
These high-value members should feel confident bringing their whole relationship to their local credit union and should be able to trust them with large balances.
Historically, however, credit unions have had limited options to insuring accounts above the $250k limit, making it challenging for credit unions to compete with banks for high-value depositors.
Fortunately, ModernFi brings a new way to insure accounts above the $250k limit. Read on to see how.
The Strategic Value of Excess Insurance
For many would-be members, the safety net provided by excess insurance is non-negotiable. These members—be they HNW individuals or business accounts—will seek out institutions that can provide a higher degree of financial stability and trust.
For large depositors, additional insurance is a prerequisite for any account.
So, if you want big accounts, you have to insure big accounts.
Plus, when times get tough and insolvency (or other issues) rears its ugly head, you don’t want your biggest accounts getting skittish with their money.
NCUA vs Private Insurance over $250k
Previously, the only insurance available to credit unions was private insurance. And while there’s nothing inherently wrong with private insurance, it may come with caveats that would make it a poor fit, such as:
- Geographical ineligibility: Private insurance over $250k is not available in all US states.
- Municipal requirements: Often, public funds must be federally insured or securitized.
- Rates, terms, and conditions: Private insurance rates and terms may be subject to change. Furthermore, it may be harder to qualify for private insurance, and credit unions may need to meet additional criteria (beyond what would be required by the NCUSIF).
However, with ModernFi, credit unions can benefit from federally backed NCUA insurance over the $250k limit without the possible headaches of private insurance.
A Look at ModernFi’s Credit Union Insurance Offer
ModernFi CUSO offers accounts with millions in federal insurance* powered through a growing deposit network of participating credit unions. ModernFi CUSO’s mission is focused on helping credit unions grow deposits and member relationships by providing accounts with extended NCUA insurance* to attract and retain large-value members.
In a nutshell, here’s how it works:
When an account exceeds the $250k limit, the excess is “swept” into another credit union (up to $250k). If there’s still excess, it gets placed in a third credit union, and so on. The NCUA insures the accounts in the second, third, etc. credit unions.
But this doesn’t mean the first credit union loses those deposits. After sweeping deposits to other credit unions in the network, they can receive deposits back to maintain the size of their balance sheet.
Consequently, ModernFi CUSO is able to insure up to $5M per account* through the NCUA. As the deposit network grows, that coverage will expand to $10M and beyond.
If this sounds like black magic accounting, we assure you that it’s not. In fact, these solutions have existed on the banking side for decades through CDARs or ICS, but they’ve never been broadly accessible for credit unions.
Until today.
Why This Is Exciting
We know that private insurance doesn’t cover credit unions in every state. It also leaves out municipalities and accounts that need federally backed insurance.
ModernFi CUSO’s NCUA insurance is a fit for federally insured credit unions in all 50 states (plus DC).
Plus, as you can probably imagine, a deposit network can enable more than just extra insurance on high-value accounts. ModernFi CUSO also offers liquidity solutions to help credit unions tactically manage their balance sheet, sourcing new deposits from the network or sweeping deposits into the network. But that’s a topic for another blog…
Learn more about ModernFi CUSO here:
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*Insurance provided by program institutions (subject to meeting certain conditions).
