FDIC vs SIPC: what each one protects, and what neither covers

FDIC insurance and SIPC protection are both safety nets for money held at financial firms, but they cover different things. The Federal Deposit Insurance Corporation insures deposits at insured banks if the bank fails. The Securities Investor Protection Corporation protects customers of a failed member brokerage firm whose cash and securities are missing. Neither one protects against a fall in the value of an investment.

What FDIC insurance covers

The FDIC says its standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. It covers deposit products such as checking accounts, savings accounts, money market deposit accounts and certificates of deposit. It does not cover stocks, bonds, mutual funds, annuities, crypto assets or the contents of a safe deposit box, even when they are bought through a bank. Our earlier piece explains how the ownership categories add up.

FDIC coverage is automatic when you open a deposit account at an insured bank. You do not apply for it.

What SIPC protection covers

SIPC is not a government agency and it is not insurance in the same sense. According to Investor.gov, the SEC's investor education site, SIPC steps in when a member brokerage firm fails and customer assets are missing. It protects up to $500,000 per customer, which includes a $250,000 limit for cash held at the firm.

SIPC restores what should have been in the account, such as shares the firm held for you. It does not make up losses because a stock price fell, and it does not cover advice that turned out badly.

Side by side

• Who backs it: FDIC is an independent federal agency. SIPC is a nonprofit membership corporation created by federal law.
• What triggers it: a bank failure for the FDIC, a brokerage firm failure with missing customer assets for SIPC.
• Limits: $250,000 per depositor, per bank, per ownership category for the FDIC. $500,000 per customer, including $250,000 cash, for SIPC.
• Market losses: not covered by either.

Where people get confused

Cash in a brokerage account is often "swept" into deposit accounts at partner banks. In that case the cash may be FDIC insured at those banks rather than SIPC protected, and the limits work differently. Firms describe their sweep programs in account disclosures, and that is the document to read.

Crypto platforms and payment apps are another source of confusion. Holding crypto at a platform does not make it FDIC insured, and the FDIC has warned about firms that suggest otherwise. To check a bank, the FDIC runs a BankFind tool. To check a brokerage, SIPC lists its members.

This article is general information about how two protection schemes work. It is not investment advice.