You may have heard of the FDIC—Federal Deposit Insurance Corporation—the federal insurance that protects the cash you hold at member banks. Did you know your cash, stocks, ETFs, mutual funds, and bonds in investment accounts may also be protected under certain circumstances? Meet the Securities Investor Protection Corporation (SIPC), a nonprofit organization created by the US government to protect investors if a brokerage firm fails. Here are the basics on SIPC coverage, and how to know if your investment accounts and assets are covered.
What is SIPC coverage?
SIPC is coverage that protects cash and securities held at a SIPC-member brokerage firm. If that firm were to face financial troubles, like bankruptcy, qualifying assets would be protected. SIPC kicks in only if your brokerage firm doesn’t maintain custody of your assets, not if there’s a drop in value due to volatility of a certain security or broader market indexes.
How does SIPC coverage work?
If your SIPC-member brokerage firms faces financial troubles and fails, SIPC coverage would apply and aim to replace the securities and cash you held at that brokerage, whether or not you’re a US citizen or even US resident. Your brokerage must be a SIPC member to qualify for SIPC coverage.
What accounts are covered by SIPC?
SIPC covers accounts at member brokerage firms that each have a “separate capacity,” or a different investing purpose or ownership. They include:
- Individual accounts (example: a brokerage account you alone own)
- Joint accounts (example: a co-owned brokerage account)
- An account for a corporation (example: a brokerage account owned by a company)
- An account for a trust created under state law
- An individual retirement account (IRA)
- A Roth IRA
- An account held by the executor of an estate
- An account held by a guardian for a ward or minor
What is the SIPC coverage limit?
SIPC covers $500,000 in securities, including a $250,000 limit on cash, per account with separate capacity held at a SIPC-member brokerage firm. Money market funds, which can be default cash positions for investing accounts (meaning, this is where dollars deposited into an investing account are swept until they’re invested), are considered a security by SIPC and are protected up to $500,000 rather than the $250,000 limit for cash.
An important note: If you hold multiple of the same account type, otherwise known as having a “similar capacity,” those accounts don’t get their own separate limits if they’re 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 to the full limit: $500,000 for each account for a total of up to $1 million in coverage. But if you held 2 traditional IRAs with the same member firm, those 2 accounts combined would be covered by a single coverage limit: $500,000, even if your total assets across the 2 traditional IRAs surpass $500,000. On the other hand, if you have a traditional IRA at one SIPC-member firm and another traditional IRA at a different SIPC-member firm, both of those accounts are covered separately, each up to the full limit.
What does SIPC cover?
SIPC covers securities and cash held in accounts at SIPC-member brokerage firms. Some of the most common securities that are protected include:
- Stocks
- Bonds
- Treasury securities
- Certificates of deposit (CDs)
- Money market funds
- Mutual funds
- ETFs
- Options, including calls, puts, and straddles
What doesn’t SIPC cover?
SIPC doesn’t cover worthless securities, losses from market price changes, or receiving bad investing advice from a brokerage firm. There are also common assets that SIPC insurance doesn’t cover because they’re not considered securities. These include:
- Any commodity, including gold or silver
- Commodities futures contracts (unless held in a special portfolio margining account) or related commodity contracts
- Foreign exchange trades
- Crypto or digital currency not registered with the US Securities and Exchange Commission (SEC)
- Fixed annuity contracts not registered with the SEC
- Investment contracts (such as limited partnerships) not registered with the SEC
SIPC vs. FDIC
SIPC and FDIC are different organizations that protect different assets held in different kinds of institutions. Here are some of the key differences between SIPC and FDIC.
| SIPC | FDIC | |
| What it covers | Certain accounts in SIPC-member brokerage firms | Cash in US bank accounts |
| Coverage limits | $500,000, including a $250,000 cash limit, per account with separate capacities, per brokerage firm member | $250,000 per depositor, per insured bank, per ownership category |
| What it protects | Cash and securities if a brokerage firm fails to maintain custody of your assets | Principal plus interest in case of bank failure |
How to maximize SIPC coverage
There are some strategies you could use if getting the most SIPC coverage possible is important to you, including:
Consider opening a joint account
If you already share finances with a partner or other close contact, having a joint account on top of your separate accounts would increase your coverage limit.
Consider additional SIPC coverage
If your securities and cash exceed the standard amount of SIPC coverage, you can check if your brokerage firm offers excess SIPC coverage. This can extend your coverage past the baseline $500,000. For instance, Fidelity provides its brokerage customers excess of SIPC coverage with no per-customer dollar limit on securities. There’s a per customer limit of $1.9 million on coverage of cash awaiting investment. Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion.