FDIC or SIPC – Who is Protecting Your Assets

| January 13, 2016 | 0 Comments

Most people are familiar with the Federal Deposit Insurance Corporation (better known as "the FDIC").  We hear these letters at the end of every bank commercial to let us know our deposits are insured in case there is another "run" on a bank or if a single bank goes under.  The FDIC insures deposits up to at least $250,000 in checking accounts, savings accounts, money markets, and CDs.  The FDIC does not insure annuities, mutual funds, stocks, bonds, ETFs, or government securities and may not cover amounts over $250,000.

The $250,000 limit is per depositor, per insured bank and for each account ownership category.  This wording opens some opportunities to get more coverage than $250,000 if you need it.  A depositor could use multiple banks to spread around their savings and can have accounts set up in different categories, such as single name accounts, joint accounts (with spouse or children), trust accounts, and certain retirement accounts.

This sounds great if you are not an investor who is looking for more than a low interest account and wants to keep their assets with one bank or broker.  The FDIC doesn't help this group of people, but the Securities Investor Protection Corporation (SIPC) does.  The SIPC protects customers if their brokerage firm fails.  Their protection covers up to $500,000 per account (with a $250,000 limit for cash).

The SIPC protects the custody function (the holding and record keeping of stocks and bonds) of broker dealers.  It does not protect against loss of value if you chose an investment that loses value. (Put options can be used for that type of insurance.)  The SIPC works to restore customers' securities and cash to make them available to transfer to a different brokerage that is on a more solid foundation.

As with the FDIC, the SIPC allows protection up to its limit to be used with multiple accounts.  These multiple accounts can be at different banks or under "separate capacities", such as an individual accounts, joint accounts, trust accounts, or IRAs.

The probability of a major US bank or broker going under and the depositor/investor losing anything is very slim, but it's good to know the protection is there, even if it has limits.  To see if your broker is covered by SIPC, visit the SIPC's list of members and search for their name.

Filed Under: General-Finances

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