Currently there are two main forms of insurance for your accounts: FDIC and SIPC. FDIC is for your bank accounts and SIPC is for your investment accounts.
FDIC
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the US government that provides deposit insurance to protect depositors in case of bank failures. FDIC insurance covers deposits at member banks, including checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs), up to $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple accounts in different ownership categories, each account could be insured up to $250,000.
What are multiple ownership categories? They are account types such as the following:
- Single accounts
- Joint accounts
- Certain Retirement accounts
- Revocable Trust accounts
- Irrevocable Trust accounts
- Employee Benefit Plan accounts
- Corporation/Partnership/Unincorporated Association accounts
- Government accounts
The FDIC has a detailed brochure explaining the different ownership categories and how the $250,000 limit for each category applies.
FDIC insurance is available to depositors at participating banks and savings associations, and it is backed by the full faith and credit of the US government. The insurance is automatic and does not require any action on the part of the depositor other than making sure the bank is a member of FDIC.
If a bank fails, the FDIC will typically step in to manage the bank’s assets and liabilities and pay out insured deposits to depositors as quickly as possible. According to the FDIC, in most cases, insured deposits are available to customers within a few business days after a bank failure. However, the actual timeline can vary depending on the complexity of the situation and the size of the failed bank. In rare cases, it may take longer for depositors to receive their insurance payments.
SIPC
SIPC stands for the Securities Investor Protection Corporation. It is a nonprofit organization created by Congress in 1970 to protect investors in the United States in case of a brokerage firm failure or fraud.
SIPC insurance provides protection for customers of member broker–dealers, up to $500,000 for securities and cash (including up to $250,000 in cash) held by the brokerage firm.
SIPC insurance does not protect against market losses or bad investment advice, and it is not the same as the Federal Deposit Insurance Corporation (FDIC) insurance that protects bank deposits. Rather, SIPC insurance is intended to provide an additional layer of protection for investors in case of a brokerage firm’s insolvency.
Again, the brokerage firm where you have your account must be a member of SIPC for this added protection.
Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.
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