Understanding FDIC and SIPC Insurance
Protecting your assets.
Protecting your assets.
FDIC insurance protects your assets in a bank account (checking or savings) at an insured bank. SIPC insurance, on the other hand, protects your assets in a brokerage account. These types of insurance operate very differently—but their purpose is the same: keeping your money safe. Let's take a look at how they protect you.
The FDIC—short for the Federal Deposit Insurance Corporation—is an independent agency of the U.S. government that protects you against the loss of your deposits in an FDIC-insured bank or savings association that fails. Any person or entity can have FDIC insurance coverage in an insured bank, even if you're not a U.S. citizen or resident. FDIC insurance is backed by the full faith and credit of the United States government.
Here are answers to the most common questions about all the ways the FDIC works to keep your money safe.
What is FDIC Deposit Insurance?
FDIC insurance covers depositors' accounts at each insured bank, dollar-for-dollar, including principal and any accrued interest through the date of the insured bank's closing, up to the insurance limit.
FDIC insurance covers all types of deposits received at an insured bank, such as:
- Checking accounts
- Savings accounts
- Negotiable Order of Withdrawal (NOW) accounts
- Money market deposit accounts (MMDA)
- Time deposits such as Certificates of Deposit (CDs)
- Cashier's checks, money orders, and other official items issued by a bank
What Financial Products Are Not Insured by the FDIC?
FDIC Insurance does not cover non-deposit investments or investment products, even if they were purchased at an insured bank. These include:
- Stock investments
- Bond investments
- Municipal securities
- Mutual funds
- Life insurance policies
- Safe deposit boxes or their contents
- U.S. Treasury bills, bonds or notes
- Exchange traded funds
- Cash held in Schwab One® Interest Feature
How is FDIC insurance coverage determined?
The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category at a bank. All deposits a depositor has in the same ownership category at each insured bank are added together and insured up to $250,000. Funds deposited in separate branches of the same insured bank are not separately insured.
The FDIC provides separate insurance coverage for deposits held in different "ownership categories." This means you may qualify for more than $250,000 in insurance coverage if you have funds deposited in different ownership categories and all FDIC requirements are met. The different account ownership categories include:
- Single accounts owned by one person
- Joint accounts owned by two or more people
- Certain retirement accounts such as IRAs and self-directed contribution plans
- Revocable trust accounts
- Irrevocable trust accounts (this category will be combined with revocable trust accounts in March 2024).
- Employee benefit plan accounts
- Corporation/partnership/unincorporated association accounts
- Government accounts
So, for example, you can be eligible for $250,000 of coverage for funds held at a specific FDIC-insured bank in a single account, plus $250,000 held at that same bank in a joint account, plus $250,000 held at that same bank in a retirement account such an IRA, for a total of $750,000 of coverage.
How can I calculate my FDIC insurance coverage?
Because the deposit insurance rules are complex, you may want to use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate your FDIC coverage for FDIC-insured banks where you have deposit accounts.
You can also use the FDIC's estimator for hypothetical situations. For instance, if you would like to see how much of some assets would be covered by FDIC insurance, you can enter bank and account information and get an estimate on how much would be insured.
Examples of FDIC insurance coverage
Example 1: If you have a single deposit account and a revocable trust account with one beneficiary at the same FDIC-insured bank, both accounts would be separately insured up to $250,000 each for a total of $500,000.
Example 2: If you and partner or spouse have a joint deposit account with $500,000 at an FDIC-insured bank and you each also have a single account with $250,000, you would each be insured up to $250,000 per account for a total of up to $1 million in FDIC deposit coverage at that institution.
It's important to understand that the $250,000 limit applies to each FDIC-insured bank. This means an account holder could have deposit accounts at two or more FDIC-insured banks and be covered at each institution by a separate $250,000 limit.
What is SIPC insurance?
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that was created by federal statute in 1970. More than 3,500 brokerage firms (which is most of them) are SIPC members.
Unlike the FDIC, SIPC does not provide blanket coverage. Instead, SIPC protects customers of SIPC-member broker-dealers if the firm fails financially. SIPC insurance covers investors for up to $500,000 in securities and up to $250,000 in cash.
However, there are instances where investors are SIPC-insured for more than $500,000 depending on how the accounts are held, according to what SIPC calls "separate capacities."
Examples of separate capacities include:
- Individual accounts
- Joint accounts
- Traditional retirement accounts
- Roth retirement accounts
- Trust accounts
- Corporate accounts
- Accounts held by a guardian for a minor
This means if you own a traditional IRA and a Roth IRA, SIPC insures those separately and you will be insured for up to $1 million for the two accounts at a SIPC-member broker-dealer. Or a married couple with a joint account could gain an additional $500,000 in SIPC protection on top of their individual account protections. If they hold different trust accounts, they could also potentially gain additional SIPC insurance coverage for each.
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.