Are Brokerage Funds Insured? - Experian (2024)

In this article:

  • What Is SIPC Insurance?
  • FDIC vs. SIPC Insurance
  • How Can You Protect Yourself From Investment Losses?

When it comes to your wealth, you want reassurance that your money is safe and protected.

While bank balances are insured by the Federal Deposit Insurance Corporation (FDIC), investments held in a brokerage account are covered by the Securities Investor Protection Corporation (SIPC). It protects investors in the unlikely event that their brokerage firm fails. However, certain rules and conditions apply—and your investment earnings are not insured.

SIPC insurance can offer some peace of mind, but it doesn't eliminate risk altogether. Here's a closer look at how it works.

What Is SIPC Insurance?

Like FDIC-insured bank accounts, SIPC-insured brokerage accounts protect your investments in certain situations. These accounts are reserved for brokerage firms that are SIPC members, which includes pretty much all brokerages registered with the Securities and Exchange Commission (SEC). If you read the fine print on your brokerage's website, you'll likely see some indication of SIPC membership. Non-members are required to disclose that information to their customers. If this is the case with your brokerage, you may want to consider switching. Otherwise, your assets could be vulnerable if the firm fails.

You can check the SIPC database to see if your brokerage is an SIPC member.

When SIPC Insurance Will Protect Your Investments

SIPC insurance generally kicks in during the following situations, according to the Financial Industry Regulatory Authority:

  • A brokerage firm goes bankrupt or becomes insolvent: If a brokerage firm falls on hard times and is unable to return customer assets, SIPC insurance should get involved to make things right. Here's an example: It isn't uncommon for broker-dealers to partner with a clearing firm to execute customer orders. The clearing firm serves as a holding place for customer assets, which can include securities and cash. If they end up collapsing, SIPC insurance will step in to return missing funds.
  • Instances of unauthorized trading: If a brokerage firm uses your account to make unauthorized trades, you should be protected by SIPC insurance. Things get fuzzy, though, if your account gets hacked. In this situation, your protection depends on whether the hack played a part in the brokerage's liquidation.

It's worth noting that SIPC insurance does not protect against regular investment losses. If your securities decline in value, don't expect the SIPC to bail you out. The same goes for investors who purchase stocks or other securities that end up underperforming—even if an advisor recommended you do so.

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What SIPC Insurance Covers

The SIPC protects cash and securities in a brokerage account. The firm holding the account must be an SIPC member. Protected assets include:

  • Cash
  • Stocks
  • Bonds
  • Treasury securities
  • Mutual funds
  • Money market mutual funds
  • Certificates of deposit

Securities and cash in your brokerage account are protected up to $500,000. Half of that amount can cover missing cash.

What's Not Covered

  • Currency
  • Commodity futures
  • Fixed annuity contracts
  • Unregistered investments

FDIC vs. SIPC Insurance

Both SIPC insurance and FDIC insurance can protect consumers from financial losses. However, they're structured a little differently.

SIPC Insurance FDIC Insurance
Designed for Brokerage accounts containing cash and other securities that are held with an SIPC member. That can include stocks, bonds, mutual funds, Treasury securities and more. Deposit accounts held by FDIC members. That can include checking and savings accounts, money market accounts and certificates of deposit.
Covered events When a brokerage account becomes insolvent or goes bankrupt. Instances of unauthorized trading are also covered. When a bank fails and is unable to return financial assets to customers.
Coverage limits Up to $500,000 per consumer, half of which can be used for cash Up to $250,000 per depositor, per insured bank account
How to get reimbursed Customers will generally receive a claim form from the trustee supervising the liquidation. If you don't receive it, be sure to file one yourself to ensure coverage. No action is necessary. Coverage will automatically kick in up to the covered amount.

How Can You Protect Yourself From Investment Losses?

Investment losses are always a possibility. There's no foolproof way to avoid them, but there are steps you can take to help mitigate investment risk.

  • Revisit your asset allocation. This refers to the way your investment portfolio is structured. A balanced portfolio reflects a healthy mix of different assets. That includes both high-risk and low-risk investments. Diversifying in this way can help you keep an even keel if certain securities decline in value. Market volatility comes with the territory, but revisiting your asset allocation is meant to keep you aligned with your long-term financial goals and risk tolerance.
  • Consider low-risk investments. Part of diversification is sprinkling low-risk investments into your portfolio. Returns are typically lower when compared to riskier investments, but they can provide reliable returns you can count on. This can include Series I bonds, certificates of deposit, money market accounts and more.
  • Work with a financial professional. The right financial advisor can provide customized investment advice. They'll usually take your risk tolerance, financial goals and retirement timeline into account, then make personalized recommendations from there. Robo-advisors can be a cost-effective alternative. They use algorithms to manage your investment portfolio.

The Bottom Line

Most brokerage firms are insured by the SIPC. This protects investors in the unlikely event that the firm fails. Consumers need to file a claim with the SIPC to receive reimbursem*nt, but regular investment losses aren't covered.

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Are Brokerage Funds Insured? - Experian (2024)


Are Brokerage Funds Insured? - Experian? ›

Accounts Are Typically Insured

Are funds in brokerage accounts insured? ›

The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that protects customers of SIPC-member broker-dealers if those firms were to fail financially. SIPC protects brokerage accounts of each customer up to $500,000, including up to $250,000 for cash.

Is it safe to keep more than $500,000 in a brokerage account? ›

They must also have a certain amount of liquidity on hand, thus allowing them to cover funds in these cases. What this means is that even if you have more than $500,000 in one brokerage account, chances are high that you won't lose any of your money even if the broker is forced into liquidation.

Is your money safe in a brokerage account? ›

Cash and securities in a brokerage account are insured by the Securities Investor Protection Corporation (SIPC). The insurance provided by SIPC covers only the custodial function of a brokerage: It replaces or refunds a customer's cash and assets if a brokerage firm goes bankrupt.

What brokerage products are not FDIC? ›

Investment products that are not deposits, such as mutual funds, annuities, life insurance policies and stocks and bonds, are not covered by FDIC deposit insurance. See “Financial Products that Are Not Insured by the FDIC” for more information about uninsured financial products.

Is SIPC as safe as FDIC? ›

The SIPC is not better or worse than the FDIC, but it is different. The SIPC is a nonprofit with one goal: to restore securities to investors when brokerage firms fail. Impacted investors need to file a claim before the deadline, and unlike FDIC-insured accounts, the reimbursem*nt process is not automatic.

Are brokerage accounts insured by SIPC? ›

Brokerage firm failures are rare. If it happens, SIPC protects the securities and cash in your brokerage account up to $500,000. The $500,000 protection includes up to $250,000 protection for cash in your account to buy securities.

Has SIPC insurance ever been used? ›

Although not every investor or transaction is protected by SIPC, no fewer than 99 percent of persons who are eligible get their investments back with the help of SIPC.

What's the difference between FDIC and SIPC? ›

SIPC insurance and FDIC insurance offer different types of financial peace of mind. SIPC insurance protects certain investments in the unlikely event that a registered brokerage firm fails. FDIC insurance covers deposit accounts, such as checking and savings accounts, that are held by FDIC member banks.

Where do billionaires keep their money? ›

Common types of securities include bonds, stocks and funds (mutual and exchange-traded). Funds and stocks are the bread-and-butter of investment portfolios. Billionaires use these investments to ensure their money grows steadily.

What is the downside to a brokerage account? ›

Downsides of a standard brokerage account

Since it's a taxable account, you'll have to pay taxes on earnings in your account, including capital gains and dividends.

Is Charles Schwab in financial trouble? ›

From August 2022 through March 2023, Charles Schwab lost deposits due to client cash sorting at a pace of $5.6 billion per month as yields on savings accounts or other safe short-term assets like certificates of deposits rose. These deposit outflow pressures slowed significantly following the regional banking crisis.

Is Charles Schwab not FDIC insured? ›

All of the deposits at Schwab Bank are protected by FDIC insurance. That includes all of our investor checking accounts and savings accounts and CDs.

Does FDIC apply to brokerage? ›

Protecting your assets. FDIC insurance protects your assets in a bank account (checking or savings) at an insured bank. SIPC insurance, on the other hand, protects your assets in a brokerage account.

Is Fidelity no longer FDIC insured? ›

Fidelity is not a bank and brokerage accounts are not FDIC-insured, but uninvested cash balances are eligible for FDIC insurance. Balances above $5 million may be placed in a non-FDIC insured money market fund, which earns a different rate. See details in Learn more section below.

Why aren't brokerage accounts FDIC insured? ›

Unlike checking or savings accounts, mutual funds and other securities carry a certain amount of risk. While some amount of risk may be necessary for big profits to be made, investors know going in there is a chance that they could lose everything. This is why the FDIC does not insure investments.

What happens to my brokerage account if my bank goes under? ›

It's important to note, however, that some banks and credit unions have accounts that aren't covered by FDIC or NCUA insurance. If you have a brokerage account through your bank, that money will be covered by the Securities Investor Protection Corporation (SIPC).

What is the biggest disadvantage of a brokerage account? ›

Downsides of a standard brokerage account

Since it's a taxable account, you'll have to pay taxes on earnings in your account, including capital gains and dividends.

Should I put all my money into a brokerage account? ›

The reality is, unlike other kinds of financial accounts, you can't really go wrong with a bigger brokerage account balance. However, while you want to put as much money into a brokerage account so you can invest in the market, you don't want to end up with more risk than you should take on.

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