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FDIC and SIPC

Protect your money and assets against the insolvency or failure of the financial institutions that hold them

here are two programs that work to protect your money and assets against the insolvency or failure of the financial institutions that hold them, and they are FDIC and SIPC. These protection corporations are not the same, and they provide different types of coverage. Let’s take a closer look at both of them.

FDIC

The United States Government provides the protection of certain cash deposits through its Federal Deposit Insurance Corporation (FDIC). FDIC insurance covers cash deposits made to banks; these deposits may be for checking accounts, savings accounts, money market deposit accounts (NOT money market funds or bonds), and certificates of deposit.

Each individual is covered up to $250,000 per bank for each account ownership category. That means that even if you have five different joint accounts, you still only have $250,000 in coverage per bank. If you have a joint account and an individual account with one bank, you may have $250,000 in FDIC coverage for each account. The FDIC covers both the principal and earned interest up to the limits.

Just because the FDIC is a government program, don’t assume that all banks are covered by default. Banks must be members in order for their depositors to have access to this protection. As members, banks have certain capital requirements that they need to maintain. This means that they must keep their risk of failure low by having a healthy balance of assets and risks. This is good for you, the depositor, because not only does it mean you have FDIC protection but also that your financial institution is less likely to fail.

SIPC

Individuals with securities such as those that might be in an IRA enjoy a form of protection in case their brokerage firm becomes insolvent. The Securities Investor Protection Corporation (SIPC) is a non-profit membership corporation that is not part of a government initiative. It has a reserve of over $1 billion that can be used to return the value of assets held by a brokerage firm that has become insolvent, declared bankruptcy or placed unauthorized trades in a customer’s account. It provides no protection, whatsoever, against investment losses, however.

SIPC provides protection for many assets that can be placed in a brokerage account. These include:

Stocks

Bonds

Mutual funds

Cash—unless it is in the account just to earn interest. If it is between investments it may be covered.

Other points about SIPC to remember include:

SIPC does not cover gold, silver, annuities and certain other assets.

SIPC can recover up to $500,000 in assets for customers, with a $250,000 limit for cash in a brokerage account.

SIPC is not a part of the FDIC, and in order for a firm’s accounts to have SIPC protection, they MUST be a SIPC member firm.

In order to claim a loss through SIPC after a brokerage has become insolvent, you should supply records of your account holdings. SIPC will compare this to brokerage records in order to validate the claim. The best record to supply is a copy of your most recent brokerage account statements.

It’s always important to remember that the goal of each of these programs is not to protect individuals from investment loss, poor performance, fraud or bad financial decisions, but from the failure of the institutions that are designed to hold the assets.

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Filed Under: money | fdic | protect | sipc |

comments:

numbertwenty3 Date: 03/01/12 jimbo812 Date: 02/10/12 I wasn't aware of SIPC before, so that was good information. HONDAHANSON Date: 02/09/12 Great info... vsparks Date: 02/07/12 Sparks McKenzie Date: 02/06/12 "Each individual is covered up to $250,000 per bank for each account ownership category. That means that even if you have five different joint accounts, you still only have $250,000 in coverage per bank." This is not true, according to FDIC.gov. Their website states "The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category." So if you have a joint account EACH person is insured to $250,000; or $500,000 total... Not $250,000 "per bank," as stated above. Also, why is the NCUA not mentioned in this article? This whole article seemed misinformative and not thorough. nroslosnik Date: 02/03/12 briley1960 Date: 02/02/12 Good article - I learned a couple of things from it. Thanks. driley1960 Date: 02/02/12 This is a good, concise article explaining FDIC and SIPC. Thanks for the information.

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