SIPC vs FDIC: How Your Accounts Are Protected

SIPC vs FDIC: What Is the Difference?

The difference between SIPC and FDIC comes down to what they protect and where your money is held. The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks — your checking account, savings account, and certificates of deposit — up to $250,000 per depositor, per institution. The Securities Investor Protection Corporation (SIPC) protects customers of broker-dealers if the brokerage firm fails and customer assets are missing, covering up to $500,000 in securities and cash with a $250,000 sublimit on cash claims.

These two protections operate in entirely different domains. FDIC insures you against your bank going under. SIPC protects you against your brokerage firm going under. Neither protects you against losing money on bad investments. A stock that drops 80% is not an FDIC or SIPC event — that is market risk, and no insurance program covers it.

Understanding which protection applies to your accounts prevents dangerous misunderstandings about what is actually safe and what is at risk.

How FDIC Insurance Works

The FDIC was created in 1933 during the Great Depression after thousands of bank failures wiped out depositors' savings. It provides insurance on deposits held at FDIC-member banks, which includes virtually every commercial bank in the United States.

What FDIC covers:

• Checking accounts
• Savings accounts
• Money market deposit accounts (not to be confused with money market funds)
• Certificates of deposit (CDs)
• Negotiable order of withdrawal (NOW) accounts

What FDIC does not cover:

• Stocks, bonds, or mutual funds (even if purchased through a bank)
• Annuities
• Life insurance policies
• Safe deposit box contents
• U.S. Treasury securities (these are backed directly by the government)

The coverage limit is $250,000 per depositor, per insured bank, per ownership category. Ownership categories include single accounts, joint accounts, retirement accounts (IRAs), and trust accounts. A married couple could have up to $1 million in FDIC coverage at a single bank by using different ownership categories: $250,000 in each spouse's individual account and $250,000 in each spouse's share of a joint account.

How SIPC Protection Works

The SIPC was created by the Securities Investor Protection Act of 1970 after several broker-dealer failures left customers unable to recover their securities. SIPC is a nonprofit membership corporation — all registered broker-dealers are required to be SIPC members. It is not a government agency, though it was created by federal legislation.

What SIPC covers:

• Stocks held in your brokerage account
• Bonds held in your brokerage account
• Mutual funds and ETFs
• Cash held in a brokerage account awaiting investment
• Notes and other securities registered with the SEC

What SIPC does not cover:

• Commodity futures contracts
• Cryptocurrency (even if held at a SIPC-member broker)
• Fixed annuities
• Investment losses from market declines
• Losses from fraud (though SIPC may help recover assets in fraud-related failures)

The coverage limit is $500,000 per customer, with a $250,000 sublimit on cash. This means if your broker fails and you are owed $400,000 in stocks and $300,000 in cash, SIPC covers the full $400,000 in stocks but only $250,000 of the $300,000 in cash. Your total recovery would be $650,000 of the $700,000 owed.

SIPC protection is triggered only when a broker-dealer becomes insolvent and customer assets are missing. If your broker shuts down but your assets are all accounted for, SIPC facilitates the transfer of your account to another broker without needing to use its insurance fund.

SIPC vs FDIC: Key Differences

What SIPC Does Not Protect Against

This is the single most important point about SIPC, and the most frequently misunderstood. SIPC does not protect you from bad investments. If you buy $100,000 worth of stock and the price drops to $20,000, you have lost $80,000 — and SIPC has nothing to do with it. Your shares are still in your account. They are just worth less.

SIPC steps in only when the brokerage firm itself fails and cannot account for customer assets. This is a custodial failure, not a market failure. The distinction matters:

Market risk (NOT covered): You own 500 shares of a company that goes bankrupt. Your shares become worthless. This is an investment loss, not a brokerage failure. SIPC does not apply.

Custodial risk (covered): Your broker-dealer goes bankrupt and your 500 shares cannot be found in the firm's records. SIPC steps in to make you whole up to coverage limits, either by locating your shares, transferring your account to a solvent broker, or compensating you for the missing securities.

The 2008 Lehman Brothers bankruptcy illustrates the distinction. When Lehman's broker-dealer subsidiary failed, SIPC initiated proceedings and facilitated the transfer of approximately 110,000 customer accounts to Barclays. Customer securities were transferred intact because they were held in segregated accounts. SIPC's role was administrative — ensuring customers could access their existing assets — not compensating for investment losses.

The Bernard Madoff fraud case in 2008 is the most prominent SIPC event. When Madoff's firm collapsed, SIPC initiated liquidation proceedings. The SIPC trustee has recovered and distributed billions to defrauded customers. However, SIPC's $500,000 coverage limit meant that customers with larger claims relied on the trustee's recovery efforts to receive additional compensation.

FDIC vs SIPC: Funding and Solvency

FDIC funding comes from insurance premiums paid by member banks, not from taxpayer dollars. The FDIC maintains the Deposit Insurance Fund (DIF), which held approximately $128 billion as of mid-2025. If the DIF were ever depleted, the FDIC has a $100 billion line of credit with the U.S. Treasury and the backing of the full faith and credit of the United States government. In practice, depositors at FDIC-insured banks have never lost a penny of insured deposits since the FDIC's creation in 1933.

SIPC funding comes from assessments on member broker-dealers. The SIPC fund holds approximately $4-5 billion. SIPC also has a $2.5 billion line of credit with the SEC, which can borrow from the U.S. Treasury if needed. While SIPC does not carry the same explicit government guarantee as the FDIC, the federal backstop through the SEC provides a secondary layer of support.

The funding difference reflects the different scale of risk. Bank deposits in the U.S. total trillions of dollars, requiring a large insurance fund. Brokerage custodial failures are far less common, and the segregation rules requiring brokers to keep customer assets separate from firm assets reduce the likelihood that customer securities are missing when a broker fails.

Where Your Cash Sits: Bank vs Brokerage

Understanding which protection applies requires knowing where your money actually resides. Many brokerage firms sweep uninvested cash into FDIC-insured bank accounts, which can change the applicable protection.

Cash in a bank account: Covered by FDIC up to $250,000. This includes checking, savings, and CDs at any FDIC-member bank.

Cash in a brokerage account: Covered by SIPC up to $250,000 (the cash sublimit within the $500,000 total). Many brokers also carry excess SIPC insurance through private insurers like Lloyd's of London.

Cash swept from brokerage to partner banks: When your broker sweeps uninvested cash to affiliated or partner FDIC-insured banks, that cash is covered by FDIC, not SIPC. Fidelity, Schwab, and other major brokers use sweep programs that can distribute cash across multiple banks, potentially providing more than $250,000 in FDIC coverage.

Securities in a brokerage account: Covered by SIPC up to $500,000. This includes stocks, bonds, ETFs, and mutual funds. The securities themselves are held in your name (or "street name" by the broker on your behalf) in segregated accounts, separate from the broker's own assets.

Account Types and Coverage Stacking

Both FDIC and SIPC allow coverage to apply separately across different ownership categories or account types, effectively increasing your total protection.

FDIC ownership categories include single accounts, joint accounts, certain retirement accounts, revocable trust accounts, and irrevocable trust accounts. Each category receives its own $250,000 limit at each bank.

SIPC "separate customer" treatment can apply to different account types at the same broker. An individual brokerage account and an IRA at the same firm may qualify as separate customers, each receiving up to $500,000 in SIPC coverage. A margin account and a cash account held by the same individual are generally combined as a single customer for SIPC purposes.

The rules for SIPC separate customer treatment are more complex than FDIC ownership categories, and the determination can depend on the specific facts of each case. Consult SIPC.org or a financial advisor for guidance on your particular account structure.

Frequently Asked Questions

Does SIPC cover my account if the stock market crashes?

No. SIPC does not protect against investment losses of any kind. If your portfolio drops 50% during a market crash, your shares are still in your account — they are just worth less. SIPC only applies when your brokerage firm fails and cannot return your securities or cash. Market risk is a fundamental part of investing that no insurance program covers.

Are my retirement accounts covered by FDIC or SIPC?

It depends on where the retirement account is held. An IRA at a bank that holds CDs and savings deposits is covered by FDIC (up to $250,000 as a separate ownership category from your individual accounts). An IRA at a brokerage firm that holds stocks and bonds is covered by SIPC. The protection follows the institution type, not the account type.

What happens to my brokerage account if my broker goes out of business?

If a SIPC-member broker fails, SIPC initiates a liquidation proceeding or arranges the transfer of customer accounts to a healthy broker-dealer. In most cases, your securities are transferred intact because they are held in segregated accounts separate from the firm's assets. You may experience a temporary freeze on account activity during the transfer, but your day trading and investment positions are typically preserved.

Is my cryptocurrency covered by FDIC or SIPC?

No. Neither FDIC nor SIPC covers cryptocurrency holdings. Crypto is not a deposit (so FDIC does not apply) and is not a registered security under current SEC definitions (so SIPC does not apply). Cryptocurrency held at an exchange or custodian is protected only by that firm's own insurance and security measures, if any. This is a significant risk factor that distinguishes crypto from traditional financial assets.

Can I have both FDIC and SIPC protection at the same institution?

Yes. Many large financial institutions operate both a bank and a broker-dealer. Cash deposits in the banking arm are FDIC-insured. Securities held in the brokerage arm are SIPC-protected. Some firms also sweep brokerage cash into FDIC-insured bank accounts, meaning your uninvested cash may be covered by FDIC rather than SIPC, depending on the sweep arrangement.