FDIC vs. SIPC: Where Is It Better to Hold Cash? (2024)

The Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) are independent entities created by Congress to protect consumers in the event of a bank or brokerage firm failure during difficult economic times. When thinking about the best place to stash your cash, it’s important to consider the pros and cons of these insurance protections when deciding between a bank or brokerage.

We take a closer look at SIPC vs. FDIC: their differences, what financial products are covered, how the reimbursem*nt process works, and which type of insurance is better when you’re holding cash.

SIPC vs. FDIC: What’s the Difference?

While the FDIC and the SIPC have similar functions—protecting consumers’ assets—there are some crucial differences. One of the most important differences is the FDIC is an independent agency within the U.S. government that provides insurance which protects consumers’ assets held in banks or savings associations, while the SIPC is a nonprofit organization that works to restore consumers’ missing cash and securities when a brokerage firm goes bankrupt. SIPC’s focus is both different and narrow: restoring customer cash and securities left in the hands of bankrupt or otherwise financially troubled brokerage firms. Unlike the FDIC, which insures depositors of insured banks and investigates complaints, the SIPC has no authority to investigate complaints or regulate its members.

The SIPC protects consumers’ brokerage account assets, while FDIC insurance protects assets in banks or savings associations. Here’s what you need to know about each type of insurance.

SIPC

FDIC

Accounts covered

If an SIPC-member brokerage firm fails, the SIPC tries to restore consumer cash and securities in the accounts, including stocks, bonds, and mutual funds.

If an FDIC-insured bank fails, the FDIC pays insurance to depositors up to the maximum amount allowed, including funds in any deposit account.

Maximum coverage

Up to $500,000 total, including up to $250,000 of cash, for each separate capacity.

Up to $250,000 per depositor, for each ownership category.

Protecting cash value

Does not protect the value of any security; does not protect against standard losses, bad investment advice, or asset underperformance (the decline in value of your securities).

Protects the value of assets held in bank accounts, up to the insured limit.

When it applies

You can use the coverage when a brokerage firm fails.

You can use the insurance when a bank or savings association fails.

How to use it

Complete a form to file a claim with the SIPC by the deadline specified.

The reimbursem*nt process is automatic; you’ll usually receive the funds within a few days.

What Is FDIC Insurance?

The Federal Deposit Insurance Corporation (FDIC) is an agency within the U.S. government that protects FDIC-insured banks and savings association depositors against the loss of their insured deposits in the event of a failure.

How FDIC insurance works.

If an FDIC-insured bank or savings association fails, depositors receive reimbursem*nt up to the limit of the insured balance in their accounts, per depositor for each insured category. The process is straightforward and automatic. You do not need to file a claim, and the FDIC will contact you with any questions.

Consumers receive reimbursem*nt in one of two ways: a new account with the insured funds at a new FDIC-insured bank or a check for the money in the mail.

Financial products covered by FDIC insurance.

FDIC insurance protects money in FDIC-insured banks and other savings associations. The following products are generally covered up to insured limits:

  • Checking accounts

  • Savings accounts

  • Money market accounts

  • Some prepaid cards

  • Certificates of deposit (CDs)

How to confirm your bank is FDIC-insured.

Most banks and savings associations in the United States are FDIC-insured and usually display the FDIC logo online, in marketing materials, and when applicable, in a branch (in person). You can also search the FDIC database to confirm your bank is FDIC-insured.

Credit unions are insured, but not by the FDIC. Credit unions provide consumer’s federal insurance through the National Credit Union Association (NCUA) up to maximum limits.

What Is SIPC Insurance?

The Securities Investor Protection Corporation is a nonprofit organization created by the Securities Investor Protection Act of 1970. Most brokerage firms are required to be SIPC members. If a member firm fails, the SIPC works with court-appointed trustees to try to restore the cash and securities that are in investors’ accounts when the brokerage firm liquidation begins and to return securities and other investments to individual investors that have filed a claim.

How SIPC insurance works.

If an SIPC-member brokerage firm is in financial trouble or fails, the SIPC protects the securities and cash in the accounts and oversees the liquidation of member firms that close. To receive reimbursem*nt, you will need to file a claim by the deadline. From there, upon review of your claim, the Trustee will mail a “determination letter” stating whether your claim is approved or denied. If your claim is approved and you agree, you’ll receive cash or delivery of securities.

The SIPC works to replace the number of securities in the account. But the value of the securities might be higher or lower depending on the current state of the market. For example, if you have five shares of a stock worth $500 when the brokerage firm fails, the SIPC may replace the five shares, however, they might be worth more or less due to changes in the market valuation of those securities.

Financial products covered by SIPC insurance.

The SIPC protects securities and cash in brokerage accounts. The following are some types of investments generally protected by SIPC insurance up to insurable limits:

  • Cash

  • Stocks

  • Bonds

  • Treasury securities

  • Mutual funds

  • Transferable shares held in brokerage accounts

  • Any other investment that is commonly known as a security

How to confirm your brokerage is an SIPC member.

All registered brokers or dealers are required to have SIPC membership, with some exceptions. Similar to FDIC members, SIPC members are required to display their membership in advertisem*nts, online, and if applicable, in person. You can review the list of over 3,500 members to confirm your brokerage firm is insured.

Where Should You Hold Your Cash: FDIC or SIPC?

With SIPC and FDIC insurance, one isn’t necessarily better than the other since both types of coverage protect you in different ways, and can help you feel reassured about the safety of your savings or investments within coverage limits and applicability. Just be sure to check that your financial institution is a member of one or the other.

When holding cash, FDIC-insured institutions could be considered a better choice since, in the event of a bank failure, your funds are restored quickly and you won’t need to file any claims or take any action. The SIPC process can be cumbersome and take more time, and you will need to file a claim and monitor communications with your institution. So, if you’re looking to protect cash, an FDIC-insured checking or high-yield savings account are solid options and usually make the most sense.

SIPC Insurance vs. FDIC Insurance FAQs

The SIPC and the FDIC are similar because they work to protect consumers if institutions fail. But there are critical differences, and it’s important to understand them to make the best choices for your needs.

Is SIPC as good as FDIC?

The SIPC is not better or worse than the FDIC, but it is different. The SIPC is a nonprofit with one goal: to restore securities to investors when brokerage firms fail. Impacted investors need to file a claim before the deadline, and unlike FDIC-insured accounts, the reimbursem*nt process is not automatic. But the SIPC protects investors in a way that wouldn’t otherwise exist.

What's not covered by SIPC insurance?

The SIPC protects investors only against brokerage firm failure. The organization does not bail out consumers who lose money due to stock market fluctuations, lousy investment advice, or the purchase of worthless stocks.

What does SIPC protect against?

The SIPC protects investors if a brokerage firm files for bankruptcy or is considered “financially troubled.” If assets are missing from your account, the SIPC provides protection by working with court-appointed trustees to restore the assets.

Are brokerage accounts insured by FDIC?

The FDIC protects certain retirement accounts, including Individual Retirement Accounts (IRAs) and self-directed defined contribution plans like a 401(k). But the FDIC does not protect stocks or other assets in taxable brokerage accounts.

The Bottom Line

The FDIC and the SIPC help protect your assets up to coverage amounts in case of bank or brokerage firm failure. Confirming that your bank or brokerage firm is protected is always a good idea. For maximum protection and ease of reimbursem*nt, an FDIC-insured checking or savings account is a solid choice for cash savings.

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FDIC vs. SIPC: Where Is It Better to Hold Cash? (2024)

FAQs

FDIC vs. SIPC: Where Is It Better to Hold Cash? ›

Accounts covered

Should I hold my cash in FDIC or SIPC? ›

With SIPC and FDIC insurance, one isn't necessarily better than the other since they both protect you in different ways. If you have bank accounts or brokerage accounts, having both types of coverage can help you feel reassured about the safety of your savings or investments. And neither one costs you anything to have.

Is it safe to keep more than $500,000 in a brokerage account? ›

They must also have a certain amount of liquidity on hand, thus allowing them to cover funds in these cases. What this means is that even if you have more than $500,000 in one brokerage account, chances are high that you won't lose any of your money even if the broker is forced into liquidation.

Where do I keep money above my FDIC limit? ›

Deposit excess funds at a credit union

The National Credit Union Share Insurance Fund (NCUSIF) is the federal insurer of deposits at National Credit Union Administration (NCUA)-member credit unions. NCUA insurance, like FDIC insurance, is backed by the full faith and credit of the U.S. government.

Is cash protected by SIPC? ›

SIPC protects cash in a customer's brokerage firm account resulting from the sale of a customer's securities or held in a customer's account for the purchase of securities. Cash held in connection with a commodities trade or a currency trade is not protected by SIPC.

How much cash should you keep in a brokerage account? ›

Verhaalen often recommends clients maintain a cash reserve that's, at a minimum, the equivalent of six months of income.

Should I keep cash in my brokerage account? ›

A brokerage account. Uninvested cash from this type of account earns interest and is available for investing or managing expenses. Holding cash here is appropriate if you plan to spend the money within a few days or would like to quickly place a trade.

Has SIPC insurance ever been used? ›

Although not every investor or transaction is protected by SIPC, no fewer than 99 percent of persons who are eligible get their investments back with the help of SIPC.

Is it bad to have 3 brokerage accounts? ›

More accounts means more to manage

Shari Greco Reiches, a behavioral finance expert and wealth manager at Rappaport Reiches Capital Management, also recommends avoiding using multiple brokerage accounts because it can be inconvenient and difficult to monitor them.

Is it safer to have multiple brokerage accounts? ›

It ensures that your assets are not concentrated in one place, reducing the impact of potential issues with a single broker. A 2022 study by Eaton et al.

Where do millionaires keep their money if banks only insure 250k? ›

Wealthy people do not leave large amounts of money in saving/checking accounts earning no interest or income. Instead they invest their money in stocks, bonds, real estate, mutual funds, etc.

Is it bad to keep more than $250,000 in one bank? ›

It's also important to keep FDIC limits in mind. Anything over $250,000 in savings may not be protected in the rare event that your bank fails.

What is the best way to deposit a large amount of cash? ›

To safely deposit a large amount of cash, visit a brick-and-mortar branch operated by your financial institution. Contact your financial institution if you plan to make a sizable deposit, said Christopher Naghibi, executive vice president and chief operating officer at First Foundation Bank.

What does SIPC not cover? ›

SIPC does NOT protect: Your investments if the firm is not a SIPC member. Market loss. Promises of investment performance.

What is the SIPC limit for Charles Schwab? ›

We're a member of the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members with coverage of up to US$500,000 (including US$250,000 for claims for cash).

What is the limit for SIPC account? ›

SIPC protection of customers with multiple accounts is determined by "separate capacity." Each separate capacity is protected up to $500,000 for securities and cash (including a $250,000 limit for cash only). Accounts held in the same capacity are combined for purposes of the SIPC protection limits.

Is it better to put money in savings or brokerage account? ›

Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance.

Where should cash be held when not invested? ›

Savings accounts, money market accounts, and CDs are a risk-free way to invest your cash. These accounts receive FDIC insurance up to $250,000 per depositor per bank. Even if the bank goes bankrupt, the government promises you'll get your money back.

Is your money safer in a bank or a brokerage account? ›

While bank balances are insured by the FDIC, investments in a brokerage account are covered by the Securities Investor Protection Corporation (SIPC). It protects investors in the unlikely event that their brokerage firm fails. However, certain rules and conditions apply—and investment earnings are not insured.

Should I keep cash in savings or invest? ›

While the money in your savings account is safe and secure, you'll still be affected by inflation. As inflation goes up, it'll chip away your money's purchasing power, leaving you able to buy less with what you save. That's why you should also consider investing once you have a comfortable cushion of savings.

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