Investment accounts are not FDIC insured. Federal Deposit Insurance Corporation coverage applies only to deposit products—checking, savings, money market deposit accounts, and certificates of deposit—held at member banks, up to $250,000 per depositor, per bank, per ownership category.1FDIC.gov. Understanding Deposit Insurance Stocks, bonds, mutual funds, and other securities held in a brokerage account get a different form of protection through the Securities Investor Protection Corporation, which covers up to $500,000 per customer if the brokerage firm fails.2SIPC. What SIPC Protects The two programs answer different problems, and the difference matters.
Why FDIC Insurance Doesn’t Reach Your Investments
The FDIC insures deposits at participating banks and savings associations under the Federal Deposit Insurance Act.3Office of the Law Revision Counsel. 12 USC 1811 – Federal Deposit Insurance Corporation Federal law defines a “deposit” narrowly: money credited to checking, savings, time, or thrift accounts, and certificates of deposit.4Office of the Law Revision Counsel. 12 US Code 1813 – Definitions Securities are not deposits, so they fall outside the statute regardless of where you hold them.
FDIC coverage also has a narrow trigger. It pays out only when the bank itself fails. It does not pay out when a stock drops, when a fund underperforms, or when a broker gives you bad advice. Those are investment risks, and the FDIC was not built to absorb them.
What Protects a Brokerage Account: SIPC
Congress created the Securities Investor Protection Corporation as a nonprofit membership corporation under the Securities Investor Protection Act.5SIPC. What Is SIPC? If a SIPC-member brokerage enters liquidation, SIPC works to return the securities and cash in your account, usually by transferring your holdings to another solvent firm.
Here is the critical distinction: SIPC protects the custody of your assets, not their value. If your broker collapses and your shares are missing or misappropriated, SIPC steps in to recover them. If your portfolio drops 40% because the market fell, SIPC pays nothing. It also does not cover bad investment advice or promises of guaranteed returns.2SIPC. What SIPC Protects
SIPC may also cover unauthorized trades made without your consent, but only if the brokerage firm itself fails. To preserve that protection, send a written complaint to the firm as soon as you notice any unauthorized activity. The written record is typically the only way to prove the trade was not authorized.6Investor.gov. Securities Investor Protection Corporation (SIPC)
The Cash Sitting in Your Brokerage Account
Uninvested cash is where the two systems can overlap. Many brokerages automatically move idle cash into deposit accounts at one or more FDIC-insured banks through a bank sweep program. When that happens, the cash receives FDIC insurance up to $250,000 per customer at each participating bank, and firms that spread cash across several banks can extend total FDIC protection well beyond that.7Investor.gov. Cash Sweep Programs for Uninvested Cash in Your Investment Accounts
Not every sweep works this way. Some programs sweep cash into money market mutual funds, which are securities and carry no FDIC coverage. Check your brokerage account agreement to see how uninvested cash is handled and which, if any, FDIC-insured banks participate.
Coverage Limits Compared
The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each ownership category. The statute calls this the “standard maximum deposit insurance amount.”8Office of the Law Revision Counsel. 12 USC 1821 – Insurance Funds Because different ownership categories (single, joint, retirement, trust, business) are insured separately, one person can hold well over $250,000 of insured deposits at the same bank by spreading funds across account types.1FDIC.gov. Understanding Deposit Insurance
SIPC protection caps at $500,000 per customer, with a $250,000 sublimit for cash claims. Securities claims and cash claims share the $500,000 ceiling.9GovInfo. 15 USC 78fff-3 – SIPC Advances If you hold $400,000 in securities and $100,000 in cash when your broker fails, the full $500,000 is covered. If you hold $200,000 in securities and $300,000 in cash, only $250,000 of the cash is protected, and your total recovery is $450,000.
Customers holding accounts in different capacities at the same brokerage, such as an individual account and a joint account, may receive separate SIPC protection for each capacity.10SIPC. Investors with Multiple Accounts
Excess SIPC at Large Firms
Many large brokerages buy private insurance that extends coverage beyond the standard $500,000 limit. Fidelity, for example, offers excess coverage with no per-customer dollar limit on securities and up to $1.9 million for cash awaiting investment, backed by a $1 billion aggregate policy.11Fidelity. What Is SIPC Coverage and How Does It Work? Other major firms carry similar private policies. Excess SIPC works the same way as the standard version: it covers the return of missing assets if the firm fails, not investment losses. Check the firm’s account disclosures for the specifics.
What Neither Program Covers
Several products commonly sold through banks and brokerages fall outside both programs. These are the gaps that catch people.
Market losses. Neither the FDIC nor SIPC reimburses you when investments decline in value. If a stock, bond, or mutual fund drops, you absorb the loss.2SIPC. What SIPC Protects
Money market mutual funds. A money market deposit account at a bank is FDIC-insured. A money market mutual fund at a brokerage is an investment product and is not, even though it may offer check-writing that makes it feel like a bank account.12Consumer Financial Protection Bureau. What Is a Money Market Account? Held at a SIPC-member firm, the fund receives SIPC custody protection, but not protection against loss of value.
Annuities and other insurance products. Annuities are contracts with insurance companies, not deposits and not securities. They are explicitly excluded from both FDIC and SIPC coverage.13FDIC.gov. Financial Products That Are Not Insured by the FDIC If the issuing insurer fails, your protection comes from your state’s life and health insurance guaranty association, with limits that vary by state.
Cryptocurrency, precious metals, and commodities. Digital assets do not meet the legal definition of either a “deposit” or a “security” under the governing statutes. Physical gold, silver, and platinum are likewise excluded from SIPC coverage because they are not registered securities.13FDIC.gov. Financial Products That Are Not Insured by the FDIC
Issuer default on bonds. Municipal bonds are securities and are protected by SIPC if your brokerage fails and cannot return them.14SIPC. Resources – FAQs What no federal program covers is the issuer itself defaulting. If a city stops paying interest, bondholders absorb that loss no matter where the bond sits.
One boundary worth noting: if you hold deposits at a credit union rather than a bank, coverage runs through the National Credit Union Share Insurance Fund on essentially the same $250,000 terms as the FDIC.15National Credit Union Administration. Share Insurance Coverage Like the FDIC, the NCUA does not cover investments.
How to Verify Your Coverage
Before you assume anything is protected, confirm that the institution actually participates in the relevant program.
- For a bank, use the FDIC’s BankFind tool at banks.data.fdic.gov to look up your bank by name.16FDIC. Find Insured Banks – BankFind Suite
- For a brokerage, search the SIPC member directory at sipc.org. Registered broker-dealers are required by law to be members, with limited exceptions.17SIPC. List of Members
- For a credit union, look for the NCUA logo or use the credit union locator at mycreditunion.gov.15National Credit Union Administration. Share Insurance Coverage
If your brokerage sweeps uninvested cash to banks, the account disclosures should name the banks that participate. That list matters, because FDIC coverage applies separately at each one, and cash swept to a bank where you already hold $250,000 gives you no additional protection.