Jane Dotson
While bank balances are insured by the Federal Deposit Insurance Corporation (FDIC), investments in a brokerage account are covered by the Securities Investor Protection Corporation (SIPC). FDIC insurance protects your assets in a bank account (checking or savings) at an insured bank, while SIPC insurance protects your assets in a brokerage account. FDIC insurance does not cover non-deposit investments or investment products, even if they were purchased at an insured bank. SIPC insurance covers investors for up to $500,000 in securities, of which up to $250,000 can be cash balances.
| Characteristics | Values | |
|---|---|---|
| Type of Insurance | FDIC Insurance, SIPC Insurance | |
| What it Protects | Bank accounts, Savings deposits | |
| Brokerage accounts, Securities | ||
| Who it Protects | Account holders, Investors | |
| Coverage | FDIC insurance covers up to $250,000 per account | |
| SIPC insurance covers up to $500,000, including $250,000 in cash | ||
| Who Provides it | FDIC- Federal Deposit Insurance Corporation | |
| SIPC- Securities Investor Protection Corporation | ||
| Who it Applies to | FDIC-insured banks | |
| SIPC-member broker-dealers | ||
| Instances Covered | Bank failure, Brokerage failure | |
| Unauthorized trading, Firm insolvency | ||
| Firm bankruptcy | ||
| Firm insolvency |
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What You'll Learn
SIPC insurance covers investors for up to $500,000
The Securities Investor Protection Corporation (SIPC) is a federally mandated, private, nonprofit membership corporation created by federal statute in 1970. It is not the same as the Federal Deposit Insurance Corporation (FDIC) and does not provide blanket coverage. Instead, SIPC protects customers of SIPC-member broker-dealers if the firm fails financially.
It is important to note that SIPC insurance does not protect against regular investment losses. If your securities decline in value, SIPC will not bail you out. The same goes for investors who purchase stocks or other securities that underperform. SIPC also does not cover digital asset securities that are investment contracts that are not registered with the U.S. Securities and Exchange Commission (SEC).
SIPC insurance generally kicks in when a brokerage firm goes bankrupt or becomes insolvent and is unable to return customer assets. In most cases, customers can recover their assets without having to file a claim with the SIPC as the brokerage will liquidate on its own. However, if the firm refuses or is unable to self-liquidate, you may not be able to claim more than your $500,000 limit.
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FDIC insurance covers up to $250,000 per bank
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the US government that protects and reimburses your deposits up to the legal limit of $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple accounts, you may qualify for more than $250,000 in coverage if you hold accounts in more than one ownership category, either as an individual or with a joint account holder. For example, a couple with a joint checking account that's FDIC-insured can receive insurance for up to $500,000 for the same shared account ($250,000 per co-owner).
FDIC insurance covers checking, savings, and other deposit accounts. It does not cover investment accounts, including stocks, mutual funds, or US Treasury bills, bonds, or notes. These investments are backed by the full faith and credit of the US government.
It's important to note that FDIC insurance is per bank, so if you have accounts at two different banks, each with $250,000 deposited, you would be fully insured because your accounts are at two different institutions. However, if you have two individual personal checking accounts at the same bank, each with $200,000 deposited, you would only be insured up to $250,000 because both accounts have the same depositor, ownership category, and institution.
To boost your FDIC coverage, you can spread your money across multiple banks or use a deposit network. You can also use the FDIC's BankFind tool to find out if your banking institution is insured.
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FDIC insurance doesn't cover non-deposit investments
FDIC insurance does not cover non-deposit investments or investment products, even if they were purchased at an insured bank. This includes stocks, bonds, government and municipal securities, mutual funds, annuities, life insurance policies, savings bonds, crypto assets, and U.S. Treasury bills, bonds, or notes. FDIC insurance is designed to protect your assets in a bank account (checking or savings) at an insured bank. It is important to understand that the $250,000 limit applies to each FDIC-insured bank. This means an account holder could have deposit accounts at two or more FDIC-insured banks and be covered at each institution by a separate $250,000 limit.
If you put cash in a brokerage account, some firms will put that cash in an FDIC-insured account on your behalf. For example, Charles Schwab offers deposit products through Charles Schwab Bank. However, your securities (stocks, bonds, etc.) are not FDIC insured. FDIC insurance is designed to keep people comfortable with the idea of leaving their money on deposit at a bank and, in theory at least, preventing bank runs. So the securities in your brokerage account are not covered by FDIC insurance, but cash balances might be.
If you are concerned about the protection of your securities, you can look into SIPC insurance. SIPC insurance, offered by the Securities Investor Protection Corporation, protects your assets in a brokerage account. More than 3,200 brokerage firms (which is most of them) are SIPC members. SIPC insurance covers investors for up to $500,000 in securities, of which up to $250,000 can be cash balances. However, it's important to note that SIPC insurance does not protect against regular investment losses. If your securities decline in value, SIPC will not compensate you. SIPC insurance is designed to protect investors in the event that their brokerage firm fails.
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SIPC insurance doesn't cover investment earnings
Brokerage accounts are not FDIC insured. FDIC insurance is designed to keep people comfortable with the idea of leaving their money on deposit at a bank and, in theory at least, preventing bank runs. FDIC insurance protects your assets in a bank account (checking or savings) at an insured bank. FDIC covers you from bank failure.
However, most brokerage firms are SIPC members. The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that was created by federal statute in 1970. More than 3,200 brokerage firms (which is most of them) are SIPC members. SIPC insurance protects customers of SIPC-member broker-dealers if the firm fails financially.
SIPC insurance covers investors for up to $500,000 in securities of which up to $250,000 can be cash balances. However, there are instances where investors are SIPC-insured for more than $500,000 depending on how the accounts are held, according to what SIPC calls "'separate capacities."
SIPC insurance does not protect against regular investment losses. If your securities decline in value, don't expect the SIPC to bail you out. The same goes for investors who purchase stocks or other securities that end up underperforming—even if an advisor recommended you do so. SIPC insurance does not protect against losses due to a broker's bad investment advice, or for recommending inappropriate investments.
Therefore, SIPC insurance doesn't cover investment earnings.
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SIPC insurance covers most brokerage firms
Brokerage accounts are not FDIC insured. FDIC insurance is designed to keep people comfortable with the idea of leaving their money on deposit at a bank and, in theory at least, preventing bank runs. Securities in your brokerage account are not covered by FDIC insurance, but cash balances might be.
Most brokerage firms are insured by the SIPC, which stands for the Securities Investor Protection Corporation. The SIPC is a federally mandated, private, nonprofit organization that was created as part of the Securities Investor Protection Act (SIPA) of 1970. It works to restore investors' cash and securities when their brokerage firm fails financially. More than 3,200 brokerage firms (which is most of them) are SIPC members.
SIPC insurance covers investors for up to $500,000 in securities and up to $250,000 in uninvested cash. However, there are circumstances in which investors are covered for more than $500,000. This happens primarily when investors have multiple accounts of different types. For instance, if you have a traditional individual retirement account (IRA) and a Roth IRA at the same brokerage, the SIPC will insure them separately. Thus, you will be insured up to $1 million between the two accounts.
It is important to note that SIPC insurance does not protect against regular investment losses. If your securities decline in value, the SIPC will not bail you out. The same goes for investors who purchase stocks or other securities that end up underperforming, even if an advisor recommended them. SIPC insurance also does not protect digital asset securities that are investment contracts that are not registered with the U.S. Securities and Exchange Commission (SEC), even if held by a SIPC member brokerage firm.
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Frequently asked questions
No, stock brokerage firms are not federally insured institutions. However, most brokerage firms are insured by the Securities Investor Protection Corporation (SIPC).
The SIPC protects investors in the event of their brokerage firm failing financially. The SIPC does not protect against regular investment losses.
The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the U.S. government that protects your assets in a bank account (checking or savings) at an insured bank. The SIPC, on the other hand, protects your assets in a brokerage account.
The SIPC covers cash and securities in a brokerage account. The SIPC does not cover commodities, futures, currency, fixed and indexed annuity contracts, and limited partnerships.
