Understanding FDIC and SIPC Insurance

FDIC insurance protects your assets in a bank account (checking or savings). SIPC insurance, on the other hand, protects your assets in a brokerage account. These types of insurance operate very differently. Let's take a look at how they protect you.

What is FDIC insurance?

The Federal Deposit Insurance Corporation (FDIC) is a federal agency that protects customers against the loss of deposit accounts (such as checking and savings) in FDIC-insured banks. Here are some important facts to know about FDIC insurance:

• The basic FDIC insurance limit is currently $250,000 per account holder per insured bank for deposit accounts and $250,000 for certain retirement accounts deposited at an insured bank. These insurance limits include both principal and accrued interest.
• The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, municipal securities, or money market funds, even if these investments were bought from an insured bank.

It's always wise to put your money in an FDIC-insured bank. Whether it's your emergency fund or short-term cash, there's no need to take unnecessary risks.

How is FDIC insurance coverage determined?

The FDIC insurance limit applies to each account holder at each bank. Here is how the FDIC defines coverage for different account holders by some common ownership types:

• Single accounts are deposit accounts (e.g., checking, savings) owned by one person. FDIC insurance covers up to $250,000 per owner for all single accounts at each bank.
• Joint accounts are deposit accounts owned by two or more people. FDIC insurance covers up to $250,000 per owner for all joint accounts at each bank.
• Certain retirement accounts, such as IRAs and self-directed defined contribution plans, are covered by FDIC insurance up to $250,000 for all deposits in such retirement accounts at each bank.

What is SIPC insurance?

The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that was created by federal statute in 1970.

Unlike the FDIC, SIPC does not provide blanket coverage. Instead, SIPC protects customers of SIPC-member broker-dealers if the firm fails financially. Coverage is up to $500,000 per customer for all accounts at the same institution, including a maximum of $250,000 for cash.

SIPC does not protect investors if the value of their investments falls. When you think about it, this makes sense. After all, market losses are a normal part of the risk of investing.

For more information, go to SIPC.org.