Brokerage accounts are insured, but only in a specific way: the Securities Investor Protection Corporation (SIPC) covers up to $500,000 per customer, including a $250,000 sub-limit for cash, if the brokerage firm fails and cannot return your assets.1SIPC. What SIPC Protects Nothing insures you against losing money on your investments themselves. Cash sitting uninvested is often protected separately through FDIC insurance at partner banks, and many larger brokerages carry private “excess SIPC” policies on top of the statutory limits.
What SIPC Actually Protects
SIPC steps in when a member broker-dealer becomes insolvent and customer property is missing. It replaces the securities and cash that should be in your account, up to the limits, so you get your stocks, bonds, Treasury securities, CDs, mutual funds, and money market funds back.1SIPC. What SIPC Protects
Here is the part investors most often misunderstand. SIPC replaces missing securities at their current market value, not at what you paid for them. If your portfolio is down 30% when your broker fails, you get your shares back worth 30% less. SIPC is not a hedge against a bad market, a bad stock pick, or bad advice from your broker. It activates only when the firm itself cannot account for what it was holding for you.
What SIPC Does Not Cover
Several categories fall outside SIPC entirely, even when held at a member firm:
- Commodity futures and foreign exchange positions, unless held in a special SEC-approved portfolio margining account.
- Unregistered investment contracts, including limited partnerships and fixed annuities not registered with the SEC.
- Unregistered digital asset securities, which include most cryptocurrencies.1SIPC. What SIPC Protects
Ordinary market losses are also not covered. If a stock drops, a fund underperforms, or a recommendation goes badly, that loss is yours regardless of whether the brokerage is a SIPC member.
How Cash in a Brokerage Account Is Protected
Uninvested cash in your account counts against SIPC’s $250,000 cash sub-limit if the firm fails. Most brokerages, though, do not leave your cash sitting there. They run a sweep program that automatically moves idle cash into deposit accounts at one or more FDIC-insured partner banks.2Investor.gov. Investor Bulletin – Bank Sweep Programs
Once cash reaches a partner bank, it picks up FDIC coverage of $250,000 per depositor, per bank, per ownership category.3FDIC. Understanding Deposit Insurance Because sweeps typically spread cash across multiple banks, your effective FDIC coverage can run well above $250,000. A program using ten banks can insure up to $2.5 million.
The Sweep Program Trap
FDIC coverage combines every deposit you hold at a given bank in the same ownership category, no matter how it got there. If your brokerage sweeps $200,000 into Bank X and you already have $100,000 in a personal savings account at Bank X in your own name, $50,000 of that combined $300,000 is uninsured.4FDIC. Pass-Through Deposit Insurance Coverage
Your account disclosures list the banks in the sweep program. Compare that list to the banks where you already have money. If there is overlap and you are close to the limit, ask whether your brokerage lets you exclude specific banks from the sweep, or move your personal deposits elsewhere.
Getting More Than $500,000 in SIPC Coverage
The $500,000 limit applies per customer, per capacity. Accounts held in different capacities at the same firm each get their own $500,000 of SIPC protection.5SIPC. Investors with Multiple Accounts Separate capacities include:
- Individual account
- Joint account
- Traditional IRA
- Roth IRA
- Trust account
- Corporate account
- Estate account
- Guardian or custodial account
An individual taxable account and a Roth IRA at the same firm each get their own $500,000, for $1 million combined. Add a joint account with a spouse and that is another $500,000. But two individual accounts in your own name at the same firm, such as a taxable account and a margin account, share a single $500,000 limit because they are the same capacity.5SIPC. Investors with Multiple Accounts
Excess SIPC Insurance
Many larger brokerages buy private insurance that pays out beyond the statutory SIPC limits. These policies usually have an aggregate limit for the whole firm and a per-customer limit, and they typically cover securities more generously than cash. Excess SIPC is not required and is not backed by any government guarantee; it depends on the private insurer’s ability to pay. The specifics are in the account disclosures your broker gave you when you opened the account.
Confirming Your Broker Is a SIPC Member
Almost every broker-dealer registered with the SEC is required to be a SIPC member, but there are exceptions—firms operating mainly overseas and firms dealing exclusively in mutual fund distribution, variable annuities, or insurance products.6Office of the Law Revision Counsel. 15 USC 78ccc – Securities Investor Protection Corporation Search the member directory at sipc.org to confirm.7SIPC. List of Members Members generally show the SIPC logo on statements and their websites. Non-member firms are required to disclose that status to you, and their customers do not get this layer of protection.
What to Do If Your Brokerage Fails
If your firm enters a SIPC liquidation, the appointed trustee contacts customers with filing instructions. The bankruptcy court sets a claim deadline, typically 60 days after public notice of the proceeding. Federal law bars SIPC protection for any claim received more than six months after that publication date, with almost no exceptions.8SIPC. The Investor’s Guide to Brokerage Firm Liquidations Do not wait.
Gather your documentation before you file:
- Your last two or three account statements from the failed firm.
- Trade confirmations, canceled checks, and deposit receipts.
- Copies of any written complaints you sent to the firm and any responses.
Claims are filed through the trustee, or through SIPC’s website for open cases.9SIPC. How To File a Claim One point matters especially if you suspect unauthorized trading in your account: a written complaint to the firm is usually the only proof that a trade was not authorized. Send it in writing as soon as you spot the problem. Waiting, or verbally accepting the trade later, can wipe out your ability to recover those losses.10Investor.gov. Securities Investor Protection Corporation