Orlando Harmon
Stock holdings are insured by the Securities Investor Protection Corporation (SIPC), which was created in 1970 to protect investors against losses incurred due to broker bankruptcies. The SIPC covers investors for up to \$500,000 in securities and up to \$250,000 in uninvested cash per customer. It's important to note that the SIPC does not protect against losses resulting from market activity or fraud, and investment earnings are not insured. Bank balances, on the other hand, are typically insured by the Federal Deposit Insurance Corporation (FDIC), which covers depositors' accounts up to \$250,000 per account.
| Characteristics | Values |
|---|---|
| Who insures stock holdings? | Securities Investor Protection Corporation (SIPC) |
| Who does SIPC protect? | Investment account owners |
| Who does FDIC protect? | Deposit account owners |
| What is the coverage limit of SIPC? | $500,000 in securities and $250,000 in uninvested cash per customer |
| Can investors be covered for more than $500,000? | Yes, if they have multiple accounts of different types |
| Are investment earnings insured? | No |
| Are there other types of insurance for stock holdings? | Yes, "excess SIPC" insurance provided by private carriers |
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What You'll Learn
Securities Investor Protection Corporation (SIPC)
The Securities Investor Protection Corporation (SIPC) is a federally mandated, non-profit, member-funded corporation created by the US Congress under the Securities Investor Protection Act (SIPA) of 1970. It mandates membership of most US-registered broker-dealers. Although created by federal legislation and overseen by the Securities and Exchange Commission, the SIPC is neither a government agency nor a regulator of broker-dealers.
The SIPC was created to protect investors against losses incurred due to broker bankruptcies. It recovers missing cash or securities if a brokerage firm has gone out of business or failed financially. It protects the small investor, not the large investor, since there is a limit on reimbursable losses. It assures that the widow, the retired couple, and the small investor who have invested their life savings in securities will not suffer loss because of an operating failure in the mechanisms of the marketplace.
The SIPC coverage limit is $500,000 (net equity) per cash/securities account, and $250,000 for cash-only accounts. If an investor has multiple accounts at a failing brokerage, the $500,000 limit is not strictly applied per account. Instead, the notion of "'capacity" is used by the SIPC, and the $500,000 (or $250,000) limit is applied per capacity. Multiple accounts are aggregated into capacities.
The SIPC does not protect investors if the value of their investments falls. It also does not cover equity risk, which is always present in stock market investments. It also does not protect against losses resulting from market activity or fraud. It only covers member firms, so you should make sure your brokerage is a member firm.
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Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation that provides deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. Since its creation, the FDIC has worked to protect depositors' accounts at insured banks, covering the principal and any accrued interest up to the insurance limit. This limit is currently $250,000 per depositor, per insured bank, for each account ownership category.
The FDIC provides extensive resources for bankers and consumers, including guidance on regulations, information on examinations, and training programs. It also handles complaints and inquiries about FDIC-insured state banks that are not members of the Federal Reserve System. The FDIC's insurance is backed by the full faith and credit of the United States government, and no depositor has ever lost FDIC-insured funds.
It's important to note that FDIC insurance does not cover all types of accounts or products. While it covers deposit accounts, non-deposit investments, investment products, and uninsured products like stocks, bonds, and mutual funds are not insured by the FDIC.
In addition to its role in deposit insurance, the FDIC has other responsibilities. It can be appointed as a receiver when a bank is determined to be insolvent. As a receiver, the FDIC works to protect depositors and maximize recoveries for the creditors of the failed institution. The FDIC also has a legislative function, with Congress passing measures related to federal deposit insurance and reaffirming the government's commitment to backing insured deposits.
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SIPC reimbursement limits
The Securities Investor Protection Corporation (SIPC) provides coverage to safeguard investors if a brokerage firm fails. The maximum protection per customer is $500,000, with a $250,000 cap for cash. If an investor holds both securities and cash, SIPC covers up to $500,000 in total, but no more than $250,000 can be in cash. These limits apply per customer, not per account.
If you hold multiple accounts of the same type (known as having a "similar capacity"), those accounts do not have separate limits if they are held at the same firm. Your assets across those accounts are subject to the same overall limit. For example, if you have an IRA and a brokerage account with a SIPC-member brokerage firm, each of those accounts could be covered up to the full limit: $500,000 for each account, for a total of up to $1 million in coverage.
Money market funds are considered a security by SIPC and are protected up to $500,000, rather than the $250,000 limit for cash.
Some brokerage firms offer additional protection through private insurers, extending coverage beyond SIPC limits. However, these policies do not protect against investment losses.
SIPC does not protect against the risk of default by the issuer of a variable annuity contract and does not protect the value of the annuity contract. SIPC protection is also not available for claims based on variable annuity contracts that are not registered with the Securities and Exchange Commission under the Securities Act of 1933.
SIPC protection is not available for gold and silver coins, as they do not qualify as "securities" under the Securities Investor Protection Act.
SIPC does not cover worthless securities, losses from market price changes, or receiving bad investing advice from a brokerage firm.
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FDIC insurance limits
The standard FDIC insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. FDIC insurance covers deposits in all types of accounts at FDIC-insured banks, but it does not cover non-deposit investment products, even those offered by FDIC-insured banks.
FDIC deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category. All of your deposits in the same ownership category in the same FDIC-insured bank are added together for the purpose of determining FDIC deposit insurance coverage. However, you may qualify for more than $250,000 in FDIC deposit insurance coverage if you deposit money in accounts that are in different ownership categories. For example, if you have a single ownership account at an FDIC-insured bank and a joint ownership account with one or more people at the same bank, you will be insured for up to $250,000 for your single ownership account deposits and also insured separately for your ownership interest up to $250,000 for all of your joint ownership account deposits.
If you have two single ownership accounts (such as a checking account and a savings account) and an individual retirement account (IRA) at the same FDIC-insured bank, then you will be insured up to $250,000 for the combined balance of the funds in the two single ownership accounts and up to $250,000 for the funds in the IRA, because IRAs are in a different account ownership category.
Prepaid cards that are registered with the card issuer are also insured when certain FDIC requirements are met. The funds underlying the prepaid cards must be deposited in a bank. FDIC deposit insurance coverage for prepaid cards only applies when a bank fails. It does not apply to lost or stolen prepaid cards or if the prepaid card provider declares bankruptcy.
FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC was founded in 1933, no depositor has lost a penny of FDIC-insured funds.
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SIPC insurance coverage
The Securities Investor Protection Corporation (SIPC) is a federally mandated, private, nonprofit organisation that was created by Congress in 1970 as part of the Securities Investor Protection Act (SIPA). The SIPC protects investors in the event of their brokerage firm failing financially and has been responsible for recovering billions of dollars for investors.
SIPC insurance covers investors for up to $500,000 in securities, with a cash limit of $250,000. This means that if you have $500,000 in securities and $250,000 in cash, the entire amount may not be covered. However, there are circumstances in which investors are covered for more than $500,000, such as when investors have multiple accounts of different types. For example, a married couple with a joint account could gain an additional $500,000 in SIPC protection on top of their individual account protections.
It is important to note that SIPC insurance does not protect the value of any security, and investment earnings are not insured. It also does not cover digital asset securities that are investment contracts not registered with the US Securities and Exchange Commission (SEC), even if they are held by a SIPC member brokerage firm.
Many brokers and dealers also provide their customers with additional coverage through a private carrier, known as "excess SIPC" insurance, which has coverage limits of up to $100 million per account.
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Frequently asked questions
Stock holdings are insured by the Securities Investor Protection Corporation (SIPC) in the US. The SIPC covers investors for up to \$500,000 in securities and up to \$250,000 in uninvested cash.
The SIPC covers investors in the event that their brokerage firm fails or becomes insolvent. It does not cover regular investment losses.
The SIPC does not cover commodities, futures, currency, fixed and indexed annuity contracts, and limited partnerships (LPs). It also does not cover losses due to account hacking unless the firm was forced into liquidation due to the hack.
Most brokerage firms are insured by the SIPC. You can check by scrolling to the bottom of your brokerage firm's website, where you should find the SIPC membership disclosure.
