April 17, 2021

SIPC Insurance Limits

Read more about Investing

SIPC insurance covers multiple accounts up to $500K. Before investing with a brokerage, find out how it works and what account types it protects.

Anytime you invest your money, you're taking on some risk.

But one lesser-known risk is your brokerage firm going under.

Luckily, SIPC insurance can protect investors' money up to $500,000. Review which accounts it covers and how it handles multiple accounts before you invest with a brokerage.

What Is the SIPC?

The Securities Investor Protection Corporation (SIPC) is a nonprofit, non-government organization designed to compensate investors who lose money when their brokerage firm fails.

The SIPC was founded as a result of the Securities Investor Protection Act that Congress passed in 1970.[1]

Current SIPC Insurance Limits

SIPC Insurance is capped at $500,000 per customer. This includes up to $250,000 in coverage for uninvested cash in your brokerage account.

In reality, however, many investors have far more protection than that. Here's why:

SIPC protection is bundled by account type, referred to as "separate capacities". Examples of separate capacities are:

  • Individual accounts
  • Joint accounts
  • Corporate accounts
  • Trust accounts
  • Individual retirement accounts
  • Roth individual retirement accounts
  • Accounts held by an estate executor
  • Accounts help by a guardian for a ward or minor

Say you had multiple IRAs. They would be covered with $500,000 in total, not $500K each.

If you had a few trust accounts on top of that, they would also get a "bundled" $500,000 in protection.

It's worth noting that some brokerage firms offer additional coverage. Major brokerage firms like Vanguard and Fidelity provide "excess SIPC coverage", which would compensate investors for losses beyond their SIPC limits.

What SIPC Insurance Covers

SIPC insurance protects against the loss of cash and securities that you keep in a SIPC-member brokerage firm.

If a SIPC-member brokerage firm fails and doesn't return investors' money or move it to another protected firm, the SIPC will make investors whole.

Investors automatically have SIPC coverage when they invest at a member brokerage firm. The organization protects both citizens and non-citizens, regardless of whether they're currently living in the United States.

The SIPC protects the sale of and purchase of securities, which includes:

  • Notes
  • Stocks
  • Bonds
  • Certificates of deposit
  • Mutual funds
  • Index funds
  • Money market funds
  • Options
  • Treasury securities

Don't invest blindly without knowing if your money is protected. Review full list of protected securities first.

What SIPC Insurance Doesn't Cover

First and foremost, the SIPC doesn't cover investment losses or a decrease in the value of your securities.

SIPC insurance also doesn't protect you from bad investment advice on the part of your brokerage firm, even if you feel that the losses are your broker's fault.

There are also a few specific investments that aren't covered by the SIPC. Those include:

  • 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[2]

When SIPC Coverage Doesn't Apply: Imagine you purchased $5,000 in stock through your brokerage firm. If the brokerage firm goes out of business and doesn't return your money, the SIPC will compensate you for the value of those stocks. But if the stock market crashes and your $5,000 of stock is suddenly worth $2,500, SIPC coverage doesn't apply.

How to File an SIPC Claim

If you've lost money because your brokerage firm went under (and they never returned your money), you can file a claim with the SIPC to recover your losses.

Here's how it works:

  1. The SIPC will proactively mail a claims form to each customer who had an account with the firm in the past year.

  2. You'll be required to file your claim form by the due date outlined on the form you receive.

  3. Once you file your claim, the SIPC Trustee will compare your claim form to the brokerage firm's records.

  4. The Trustee will either approve or deny your claim and send you a determination letter with their findings.

  5. From there, you'll sign and return the paperwork they provide and receive your insurance payout.

According to the SIPC website, customers generally receive at least some of what they are owed within three months of filing their claim form.

If you don't agree with the Trustee's determination letter (for example, if they deny your claim), you have 30 days from the date on the letter to object. Instructions for objecting will be included with your determination letter.

SIPC Insurance vs. FDIC Insurance

The Federal Deposit Insurance Corporation is a government agency that insures the money in bank accounts, including checking accounts, savings accounts, money market deposit accounts, and certificates of deposit.

The FDIC provides up to $250,000 per customer, per ownership category. If a bank fails, the FDIC will compensate customers for the money they lost.

Both SIPC and FDIC insurance are important pieces of the puzzle in protecting consumers from financial loss.

When you're shopping around for a bank or brokerage firm, it's important to make sure your financial institution is a member of the appropriate organizations to ensure your deposits and investments are protected.

The Bottom Line

Anytime you invest with an SIPC-member brokerage firm, your investments are protected in case the firm goes out of business. There's nothing you have to do to sign up for this insurance — you're automatically covered.

But if your brokerage firm goes out of business and fails to return your money, you may only have a short time to file your claims form with the SIPC.


Write to Erin Gobler at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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