Understanding FDIC and SIPC insurance | Vanguard (2024)

FAQs

How do SIPC and FDIC work together? ›

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. These types of insurance operate very differently—but their purpose is the same: keeping your money safe.

With SIPC and FDIC insurance, one isn't necessarily better than the other since they both protect you in different ways. If you have bank accounts or brokerage accounts, having both types of coverage can help you feel reassured about the safety of your savings or investments. And neither one costs you anything to have.

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.

The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank.

While bank balances are insured by the FDIC, investments 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 investment earnings are not insured.

SIPC does NOT protect: Your investments if the firm is not a SIPC member. Market loss. Promises of investment performance.

If a couple has a joint money market deposit account, a joint savings account, and a joint CD at the same insured bank, each co-owner's shares of the three accounts are added together and insured up to $250,000 per owner, providing up to $500,000 in coverage for the couple's joint accounts.

If you've got a large chunk of cash, you might secure better returns outside of a brokerage account. You could lose money. If your money is swept into a money market fund, that cash won't be insured by the FDIC or SIPC. It's possible to lose money.

Verhaalen often recommends clients maintain a cash reserve that's, at a minimum, the equivalent of six months of income.

More accounts means more to manage

Shari Greco Reiches, a behavioral finance expert and wealth manager at Rappaport Reiches Capital Management, also recommends avoiding using multiple brokerage accounts because it can be inconvenient and difficult to monitor them.

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.

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.

Wealthy people do not leave large amounts of money in saving/checking accounts earning no interest or income. Instead they invest their money in stocks, bonds, real estate, mutual funds, etc.

What financial products are not insured by the FDIC? FDIC insurance does not cover non-deposit investments or investment products, even if they were purchased at an insured bank. These include: Stock investments.

But the lack of FDIC insurance doesn't mean you should shun brokered CDs. Brokerage firms have insurance coverage similar to the FDIC's but provided by the Securities Investor Protection Corporation—or SIPC. In the event of a brokerage firm failure, investors are protected for up to $500,000.

The FDIC adds together the balances in all Single Accounts owned by the same person at the same bank and insures the total up to $250,000.