Q: How do I know if my investments are insured?
A: Your brokerage investments are insured by the Securities Investor Protection Corporation (SIPC). However, it’s important to understand that this is not the same as Federal Deposit Insurance Corporation (FDIC).
FDIC vs. SIPC
FDIC insurance provides protection to depositors at an FDIC insured bank in the event the bank fails. Banks fund this program by paying premiums to the United States government, which provides the insurance. FDIC insurance applies to checking, savings, money markets, and CDs. Each depositor is provided up to $250,000 based on ownership categories.
The SIPC works differently. The SIPC was created in 1970 and is a non-profit membership organization. Therefore, it is not backed by the United States government. Basically, the SIPC is an insurance fund which is paid into by SIPC-insured brokers. In the event of a failed brokerage firm, the SIPC protects investor assets up to $500,000.
Coverage under the SIPC protects cash and securities up to $500,000, which includes a $250,000 limit on cash and is based on accounts held in separate capacity. An example of accounts held in separate capacity would be an individual brokerage account and an individual retirement account (IRA). Both of these accounts would be protected up to $500,000 in the event of a failed brokerage firm.
A full list of covered securities can be found at www.sipc.org/for-investors/what-sipc-protects. However, the most common types of covered securities are:
- Individual stocks
- Treasury securities
- Certificates of deposit
- Mutual funds
- Money market mutual funds
What Is Not Covered
Bad advice, worthless securities, market declines, commodity futures, fixed annuities, hedge funds, and losses due to fraudulent activity are not insured through SIPC.
As an investor, you do not need to worry if you’re covered—if you have your investments through a SIPC member brokerage firm, coverage is automatic. The limits are set by the Securities Investor Protection Act (SIPA). While an individual investor cannot purchase additional insurance, most major brokerage firms purchase something called excess coverage that provides investors with higher protection limits than the SIPC limits.