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

6 min read
Illustration of man holding up an umbrella against red lightening bolts to protect his money underneath

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 reimbursement 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 reimbursement 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 reimbursement 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 reimbursement 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 reimbursement, 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 advertisements, 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 reimbursement 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 reimbursement, an FDIC-insured checking or savings account is a solid choice for cash savings.

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