SIPC Insurance: Understand Your Coverage and Protections
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In the wake of a bank failure like the March 2023 collapse of Silicon Valley Bank, it's wise to wonder how much protection your bank and brokerage account balances carry. The answer: Up to $250,000 and $500,000, respectively. Here's how that coverage breaks down and how to ensure you have it.
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SIPC insurance rules
Your bank account balances are insured by the FDIC up to the coverage limits. This is the coverage that applied during the failure of SVB. Assets in your brokerage account are protected by a different entity — the nonprofit Securities Investor Protection Corporation, or SIPC. In the event your broker or robo-advisor financially fails and investors' assets are missing or at risk, the SIPC will step in to make you whole by providing up to $500,000 in coverage.
Here are the basics of brokerage account insurance SIPC, including what it does and doesn’t cover.
SIPC coverage provides ...
Up to $500,000 in total coverage per customer (or per account, if the accounts are of separate capacities — more on this below) for lost or missing assets of cash and/or securities from a customer’s accounts held at the institution.
Up to $250,000 of that total can be applied to protect cash within a customer's account that is not yet invested in securities.
Protection in case of unauthorized trading or theft from an account.
SIPC insurance doesn’t cover ...
Investment losses or worthless stocks or other securities.
Losses due to account hacking, unless the firm was forced into liquidation due to the hack.
Claims against bad or inappropriate investment advice. Complaints about firms are handled by the Financial Industry Regulatory Authority, the Securities and Exchange Commission and state securities regulators.
SIPC vs. FDIC: What is and isn’t covered
SIPC (brokerage firms) | FDIC (banks) | |
|---|---|---|
Coverage amount | Up to $500,000 per customer, which includes a maximum $250,000 of cash coverage. For customers with multiple accounts, protection is determined by whether those accounts are of separate capacity. | Up to $250,000 per depositor, per institution and per ownership category |
What is covered | Stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds held at an SIPC member firm | Money in deposit accounts, including checking and savings accounts, money market deposit accounts (not money market mutual funds), certificates of deposit |
What isn’t covered | Investment losses Investments in commodity futures, fixed annuities, currency, hedge funds or investment contracts (e.g., limited partnerships) not registered with the SEC Accounts of partners, directors, officers or those with a significant/beneficial ownership in the failed firm | Mutual fund investments (stock, bond or money market), stocks, bonds, Treasurys and other investment products purchased at a bank, brokerage or dealer Annuities Life insurance policies Safe deposit box contents |
Who is covered | U.S. and non-U.S. citizens with accounts at a member institution | U.S. and non-U.S. citizens with accounts at a member institution |
Sources: Securities Investor Protection Corporation and Federal Deposit Insurance Corporation
Are your investments covered?
Scroll to the bottom of nearly any page on a brokerage firm’s site and you should see the SIPC membership disclosure. All of the online brokers we review carry SIPC insurance. If yours doesn't, it may be time to find a new one.
Firms that sell stocks and bonds and other investments to the public — as well as the clearinghouses that handle account transactions — are required by law under the Securities Investor Protection Act of 1970 to be members of the SIPC. Customers don’t have to sign up for it, and individual investors can’t purchase extra coverage.
Is SIPC coverage enough?
That depends on ...
Your account balance: Remember, SIPC coverage is limited to $500,000 total per customer. However, if you have more than that at the institution, you may still be insured for a greater amount based on …
How the accounts are titled: The “per-customer” rule of coverage is based on ownership capacity . If, for example, you have an IRA account in your name and a joint account with your spouse, the SIPC treats them as separate accounts and insures each up to $500,000. (Unlike with FDIC coverage, joint accounts aren’t insured to the full amount for each account holder with SIPC insurance.) Other examples of separate capacity include accounts held for a trust or a corporation, by a guardian for a ward or minor or by an estate executor. A margin account is not considered a separate capacity.
The amount of cash in the account: Claims on money that’s not invested and is in cash are capped at $250,000. That $250,000 counts toward the full $500,000 policy. SIPC protection may not be adequate if you keep a lot of cash in your brokerage. Note that money market mutual funds and certificates of deposit (CDs) are considered an investment and not cash under the rules.
If after adding up your assets in all their separate and combined capacities it turns out SIPC coverage falls short, consider moving a portion of your money to a different institution. (Here are instructions on how to switch brokers and move your investments.)
» MORE: NerdWallet’s best online brokers for stock trading
What if you have a Roth and a traditional IRA at one brokerage?
If you have a Roth IRA and a traditional IRA at the same institution, SIPC protection treats them as separately insured accounts and provides a total of up to $1 million in protection, or $500,000 on the Roth account and $500,000 for the regular IRA.
What happens if your brokerage goes out of business?
Even if your brokerage does shut down or become insolvent, other layers of protection will shield you from loss before the SIPC needs to step in. As FINRA points out: “In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm.”
Those other layers of protection include regulatory requirements for brokerage firms to keep customer assets segregated in separate accounts from the firm’s own money and to have a minimum amount of liquid assets on hand, kind of like an emergency fund for a broker.
If against all odds your broker gets to the liquidation phase before you get back your money, you’ll be notified by a court-appointed trustee for the liquidation on how to file a claim. (As a backup you can always go to sipc.org to request a claim form.)
The amount of your claim will be the value of the cash and securities in your account minus any debt you owe the brokerage firm (any margin loans, for example) on the date the SIPC files the court application for liquidation.
