SIPC Insurance: How Your Brokerage Account Is Protected

What Is SIPC Insurance?

The Securities Investor Protection Corporation (SIPC) is a nonprofit organization created by Congress in 1970 to protect customers of broker-dealers that fail financially. If your brokerage firm goes bankrupt or becomes insolvent, SIPC works to return your securities and cash, up to the coverage limits.

SIPC is not a government agency, and it is not funded by taxpayers. Instead, member broker-dealers pay assessments into the SIPC fund. Virtually every registered broker-dealer in the United States is required to be a SIPC member. You can verify your broker's membership at sipc.org.

The protection is straightforward: if your broker collapses and your assets are missing, SIPC steps in to recover and return your property. In most cases, SIPC transfers customer accounts to a healthy broker-dealer so you can continue trading with minimal disruption.

Coverage Limits

SIPC provides coverage up to:

• $500,000 total per customer, per brokerage
• Of which $250,000 can be in cash

The $500,000 limit includes both securities (stocks, bonds, ETFs, mutual funds) and cash. The cash sublimit means that if your entire account is in uninvested cash, only $250,000 is protected.

"Per customer" is defined by separate capacity, not by account number. A single individual with three accounts at the same brokerage has $500,000 in total SIPC coverage, not $1.5 million. However, accounts held in different capacities, such as an individual account and a joint account, may qualify for separate coverage.

SIPC vs FDIC

This is one of the most common points of confusion. FDIC and SIPC protect entirely different things:

If you hold cash in a brokerage sweep account that deposits funds into an FDIC-insured bank, that cash may qualify for FDIC coverage instead of (or in addition to) SIPC coverage. Many brokers use multi-bank sweep programs that spread your cash across several banks, potentially providing FDIC coverage well beyond $250,000. Check your broker's specific sweep arrangement.

What SIPC Does Not Cover

SIPC protection has important limitations that every investor should understand:

Market losses are not covered. If you buy $100,000 of stock and it drops to $50,000, SIPC does not reimburse the $50,000 loss. SIPC only activates when the brokerage firm itself fails and customer assets are missing.

Commodities and futures are not covered. SIPC protects securities (stocks, bonds, notes, certificates of deposit issued by brokers) and cash. Commodity futures, forex contracts, and fixed annuities fall outside SIPC's scope.

Investment advice losses are not covered. If your broker recommended a terrible stock and it went to zero, that is an investment loss, not a SIPC event.

Unregistered investments may not be covered. If your broker sold you an unregistered security that turns out to be fraudulent, SIPC coverage may not apply.

Historical SIPC Events

SIPC has initiated over 300 proceedings since its creation. The two most notable:

Lehman Brothers (2008): When Lehman Brothers filed for bankruptcy during the financial crisis, SIPC facilitated the transfer of approximately 110,000 customer accounts to Barclays. Most customers regained access to their securities within days.

Bernard Madoff (2008): The Madoff Ponzi scheme was the largest fraud case SIPC has handled. Customers had statements showing $65 billion in assets, but the actual securities never existed. SIPC trustee Irving Picard recovered over $14 billion through lawsuits and settlements, and customers who filed claims for their actual cash deposits (net investment) have recovered a significant percentage. However, those who withdrew more than they deposited faced clawback lawsuits. The Madoff case exposed the limit of SIPC's reach: it cannot replace securities that never existed.

How SIPC Protection Applies to Different Account Types

Understanding how account types interact with SIPC coverage:

• Individual accounts: $500,000 coverage per person, per brokerage
• Joint accounts: Treated as a separate capacity from individual accounts, so a married couple could have $500,000 on a joint account plus $500,000 on each spouse's individual account at the same brokerage
• IRA accounts: Each IRA is treated as a separate capacity, receiving its own $500,000 in SIPC protection
• Margin accounts: Securities purchased on margin are covered by SIPC. However, if your broker lent out your shares (as permitted in a margin agreement), recovery may be more complicated

For investors at stock exchanges with significant assets, structuring accounts across multiple brokerages and capacities can maximize total SIPC protection.

FAQ

Does SIPC cover cryptocurrency?

No. SIPC does not cover cryptocurrency, digital assets, or tokens. Even if your brokerage offers crypto trading alongside traditional securities, the crypto portion is not SIPC-protected. Some brokers have separate insurance arrangements for digital assets, but these are private policies, not SIPC coverage.

What should I do if my broker fails?

First, do not panic. SIPC will typically arrange for your accounts to be transferred to another brokerage within one to three weeks. Keep your most recent account statements, trade confirmations, and any correspondence from your broker as documentation. File a claim with SIPC promptly if notified. In most broker failures, customers recover their full account value without loss.

Is SIPC coverage per account or per person?

Per customer in each separate capacity at each brokerage. Having multiple accounts of the same type at the same broker does not multiply your coverage. However, holding accounts in genuinely different capacities (individual, joint, IRA, trust) does provide separate coverage for each capacity. Spreading assets across multiple brokerages also multiplies coverage, since the $500,000 limit applies independently at each firm.