SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms are protected when assets are missing from customer accounts. There is no requirement that a customer reside in or be a citizen of the United States. A non-U.S. citizen with an account at a brokerage firm that is a member of SIPC is treated the same as a resident or citizen of the United States with an account at a SIPC member brokerage firm.
SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.
SIPC does not protect against the decline in value of your securities. SIPC does not protect individuals who are sold worthless stocks and other securities. SIPC does not protect against losses due to a broker's bad investment advice, or for recommending inappropriate investments.
It is important to recognize that SIPC protection is not the same as protection for your cash at a Federal Deposit Insurance Corporation (FDIC) insured banking institution because SIPC does not protect the value of any security.
Investments in the stock market are subject to fluctuations in market value. SIPC was not created to protect these risks. That is why SIPC does not bail out investors when the value of their stocks, bonds and other investment falls for any reason. Instead, in a liquidation, SIPC replaces the missing stocks and other securities when it is possible to do so.
How Is My Cash Protected
SIPC protects cash in a brokerage firm account from the sale of or for the purchase of securities. Cash held in connection with a commodities trade is not protected by SIPC. Money market mutual funds, often thought of as cash, are protected as securities by SIPC. SIPC protects cash held by the broker for customers in connection with the customers’ purchase or sale of securities whether the cash is in U.S. dollars or denominated in non-U.S. dollar currency.
What Are Securities
SIPC protects stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds and certain other investments as "securities." SIPC does not protect commodity futures contracts (unless held in a special portfolio margining account), or foreign exchange trades, or investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.
Digital or crypto assets have been issued and/or transferred using blockchain or distributed ledger technology. While some of these digital assets may qualify as securities if they are deemed to be investment contracts, an investment contract, digital asset or otherwise, must be registered with the SEC in order to be a “security” as defined by the Securities Investor Protection Act (SIPA). Digital asset securities that are unregistered investment contracts do not qualify as “securities” under SIPA and are therefore not protected under SIPA, even if held by a SIPC-member brokerage firm.
For a more detailed explanation, consult the definition of “security” in the Securities Investor Protection Act, section 78lll(14):
The term “Security” means any
- note,
- stock,
- treasury stock,
- bond,
- debenture,
- evidence of indebtedness,
- any collateral trust certificate, preorganization certificate or subscription,
- transferable share,
- voting trust certificate,
- certificate of deposit
- certificate of deposit for a security, or
- any security future as that term is defined in section 78c(a)(55)(A) of this title,
- any investment contract or certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or mineral royalty or lease (if such investment contract or interest is the subject of a registration statement with the Commission pursuant to the provisions of the Securities Act of 1933 [15 U.S.C. 77a et seq.]),
- any put, call, straddle, option, or privilege on any security, or group or index of securities (including any interest therein or based on the value thereof), or
- any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency,
- any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase or sell any of the foregoing, and
- any other instrument commonly known as a security.
Except as specifically provided above, the term “security” does not include any
- currency, or
- any commodity or related contract or futures contract, or
- any warrant or right to subscribe to or purchase or sell any of the foregoing.
FAQs
SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm.
What does SIPC protect against? ›
The Securities Investor Protection Corporation (SIPC) protects customers if their brokerage firm fails. Brokerage firm failures are rare. If it happens, SIPC protects the securities and cash in your brokerage account up to $500,000.
Which is better FDIC or SIPC? ›
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.
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.
Does SIPC cover multiple brokerage accounts? ›
SIPC protection of customers with multiple accounts is determined by "separate capacity." Each separate capacity is protected up to $500,000 for securities and cash (including a $250,000 limit for cash only). Accounts held in the same capacity are combined for purposes of the SIPC protection limits.
What is not covered by SIPC? ›
SIPC protects stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds and certain other investments as "securities." SIPC does not protect commodity futures contracts (unless held in a special portfolio margining account), or foreign exchange trades, or investment contracts ...
Why should no one use brokerage accounts? ›
If the value of your investments drops too far, you might struggle to repay the money you owe the brokerage. Should your account be sent to collections, it could damage your credit score. You can avoid this risk by opening a cash account, which doesn't involve borrowing money.
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.
Does SIPC cover savings accounts? ›
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.
Are CDs covered by FDIC or SIPC? ›
Federal Deposit Insurance Corporation (FDIC) Insurance
FDIC insurance covers brokered CDs owned in brokerage accounts and deposits in FDIC member federal banking institutions, such as banks and savings associations. FDIC insurance currently provides $250,000 per depositor, per insured bank, for each ownership category.
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 brokerage do most millionaires use? ›
Best Brokers for High Net Worth Individuals
- Charles Schwab - Best for high net worth investors.
- Merrill Edge - Best rewards program.
- Fidelity - Best overall online broker.
- Interactive Brokers - Great overall, best for professionals.
- E*TRADE - Best web-based platform.
SIPC protects brokerage accounts of each customer up to $500,000 in securities, including a limit of $250,000 on claims for cash awaiting reinvestment. Money market funds held in a brokerage account are considered securities.
What is the SIPC limit for Schwab? ›
The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. There is no requirement that a customer reside in or be a citizen of the United States. A non-U.S. citizen with a Schwab account is treated the same as a resident or citizen of the United States with a Schwab account.
Is Edward Jones SIPC insured? ›
Account protection (SIPC)
Edward Jones provides account protection for your securities, except annuities and insurance, held in your brokerage account. The Securities Investor Protection Corporation (SIPC) provides $500,000 of coverage for missing securities, including $250,000 for claims of cash awaiting reinvestment.
What exactly does SIPC insurance cover? ›
SIPC protects customers against the loss of their stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds, and certain other investments as “securities,” held for them by the broker.
Is a 401k insured by SIPC? ›
What about my 401(k) account? Similar to a pension fund account, if your employer's 401(k) plan assets are held in a customer brokerage account at a SIPC- member brokerage firm, then cash and securities in that account may be eligible for protection by SIPC.
How much money can you safely keep in a brokerage account? ›
Holding cash here is appropriate if you plan to spend the money within a few days or would like to quickly place a trade. Assets in your brokerage account are protected up to $500,000 per investor, including a maximum of $250,000 in cash by SIPC in the event a SIPC-member brokerage fails.
