Is My Brokerage Account FDIC Insured?

Many individuals wonder about the safety of their funds in different financial accounts. While traditional bank accounts have a known form of protection, investment accounts operate under a distinct framework. Understanding how financial institutions safeguard customer assets is important for anyone navigating the financial landscape. This clarity helps in discerning the specific protections available for your money.

FDIC Coverage for Bank Accounts

The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency that insures depositors’ accounts at FDIC-insured banks. Its purpose is to protect against the loss of deposits if an insured bank fails. FDIC insurance covers common deposit products like checking accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs).

The standard coverage limit is $250,000 per depositor, per insured bank, for each ownership category. Funds in different ownership categories, such as single accounts, joint accounts, and certain retirement accounts, can receive separate coverage at the same institution. FDIC protection automatically applies to eligible accounts at member banks.

FDIC insurance does not cover investment products, even if purchased through an FDIC-insured bank. This includes stocks, bonds, mutual funds, annuities, and cryptocurrencies. Market losses on any investment or the contents of safe deposit boxes are not covered. The protection is for deposits in the event of a bank failure, not for declines in investment value.

SIPC Protection for Brokerage Accounts

The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation created by federal statute. It protects customers of SIPC-member brokerage firms by restoring cash and securities if a firm fails financially. This protection applies to assets like stocks, bonds, mutual funds, exchange-traded funds (ETFs), and Treasury securities held in brokerage accounts.

SIPC protection covers up to $500,000 per customer, including a limit of $250,000 for cash held for purchasing securities. This coverage activates when a brokerage firm goes out of business or becomes insolvent, leading to missing customer assets. Most legitimate U.S. brokerage firms are SIPC members.

SIPC does not protect against losses due to market value fluctuations of securities. It also does not cover losses from unsuitable investment advice, customer fraudulent activities, or investments in certain products like commodities or unregistered digital assets. SIPC protection addresses a brokerage firm’s failure, not the normal risks of investing.

Distinguishing Between FDIC and SIPC

While both FDIC and SIPC provide protections for financial assets, they serve different industry segments and cover distinct risks. The FDIC applies to banks, safeguarding cash deposits in accounts like checking, savings, and CDs. SIPC applies to brokerage firms, protecting securities and cash held within brokerage accounts for investment purposes.

The risk covered by each differs significantly. FDIC insurance protects against a bank’s failure, ensuring depositors recover insured cash balances. SIPC protection addresses a brokerage firm’s insolvency, ensuring customers’ securities and cash are returned if the firm cannot fulfill obligations. Coverage responds to the institution’s financial stability, not investment performance.

Brokerage accounts are not FDIC insured, a common misconception. Since they primarily hold investments subject to market fluctuations, they fall under SIPC protection. SIPC specifically addresses the risk of a brokerage firm failing, not losses from market downturns. Understanding these distinct roles is important for recognizing how your financial assets are protected.