Brokerage accounts are insured, but in a narrower way than most people assume. The Securities Investor Protection Corporation (SIPC) covers up to $500,000 per customer, including a $250,000 cap on cash, if your brokerage firm fails and cannot return the assets it was holding for you. Separately, most firms sweep uninvested cash into FDIC-insured partner banks, which adds bank-style deposit insurance on top. Neither one protects you from investments losing value. If a stock drops or a fund underperforms, that loss is yours.
What SIPC Actually Protects
SIPC is a nonprofit membership corporation created by Congress in 1970. Every broker-dealer registered with the SEC must be a member, with narrow exceptions.1Office of the Law Revision Counsel. 15 USC 78ccc – Securities Investor Protection Corporation When a member firm becomes insolvent and customer property is missing, SIPC advances funds to make customers whole up to the statutory limits.2GovInfo. 15 USC 78fff-3 – SIPC Advances
The ceiling is $500,000 per customer, per firm, in a single capacity. Within that total, no more than $250,000 can be cash; the rest has to be in securities.3SIPC. What SIPC Protects Covered investments include stocks, bonds, Treasury securities, certificates of deposit, mutual funds, and money market mutual funds.
One nuance worth understanding: SIPC replaces missing securities at their current market value, not what you paid for them. If your broker fails on a day your portfolio is down 30%, you get back shares worth today’s price, not yesterday’s.
What Isn’t Covered
Market losses are not insured by anyone. SIPC is not a backstop against bad investment decisions, poor advice, or a falling market. It only activates when the firm itself fails and cannot return your property.3SIPC. What SIPC Protects
Several products also sit outside SIPC entirely:
- Commodity futures and foreign exchange trades, unless held in a special SEC-approved portfolio margining account.
- Unregistered investment contracts, including limited partnerships and fixed annuities not registered with the SEC.
- Unregistered digital asset securities, which covers most cryptocurrencies, even when held at a SIPC-member firm.3SIPC. What SIPC Protects
How Cash in Your Brokerage Account Is Insured
Uninvested cash sitting in a brokerage account falls under the $250,000 SIPC cash sub-limit. Most brokerages, however, run cash sweep programs that automatically move idle cash into deposit accounts at FDIC-insured partner banks.4Investor.gov. Investor Bulletin – Bank Sweep Programs
Once the cash is at a bank, FDIC insurance applies: $250,000 per depositor, per insured bank, for each ownership category.5FDIC. Understanding Deposit Insurance Because sweep programs usually spread cash across several partner banks, total FDIC coverage on swept cash can run well above $250,000. A program with ten partner banks could, in principle, carry up to $2.5 million of insured cash for one customer.
The Aggregation Trap
FDIC coverage at a given bank combines all your deposits in the same ownership category, no matter how they got there. If your brokerage sweeps $200,000 into Bank X and you already have a $100,000 savings account at that same bank in your own name, your combined $300,000 is over the $250,000 limit, and $50,000 is uninsured.6FDIC. Pass-Through Deposit Insurance Coverage
Your brokerage’s account disclosures list the partner banks in its sweep program. Compare that list to the banks where you already have personal accounts. If there’s overlap, ask whether you can exclude specific banks from the sweep.4Investor.gov. Investor Bulletin – Bank Sweep Programs
Multiple Accounts at the Same Firm
Each account held in a different “capacity” at the same brokerage gets its own $500,000 of SIPC protection. Accounts in the same capacity are combined.7SIPC. Investors with Multiple Accounts Separate capacities include:
- Individual account
- Joint account
- Traditional IRA
- Roth IRA
- Trust account
- Corporate account
- Estate account
- Guardian or custodial account
An individual account and a Roth IRA at the same firm each get their own $500,000 limit, for up to $1 million of combined SIPC coverage. A joint account with a spouse is yet another capacity with its own $500,000. Two individual accounts in your own name at the same firm, however, count as a single capacity and share one $500,000 limit.7SIPC. Investors with Multiple Accounts
Excess SIPC Insurance
Many large brokerages buy private insurance that kicks in above the standard SIPC limits. This “excess SIPC” coverage isn’t required by law, and the terms vary by firm. Policies typically carry both a per-customer limit and a firm-wide aggregate limit. Per-customer limits on cash are usually much lower than on securities. The specifics are in the account disclosure documents you got when you opened the account.
Because excess SIPC is a private insurance policy, its value depends on the financial strength of the insurer, not on any government guarantee.
Confirming Your Broker Is a SIPC Member
You can look up your broker-dealer in the member directory at sipc.org.8SIPC. List of Members Members usually display the SIPC logo on their websites and statements. Some firms are not required to be members, mainly those operating primarily overseas or dealing exclusively in mutual fund distribution, variable annuities, or insurance products.1Office of the Law Revision Counsel. 15 USC 78ccc – Securities Investor Protection Corporation If a firm isn’t a SIPC member, your assets there don’t have this layer of protection, and the firm is required to tell you so.
If Your Brokerage Fails
In a SIPC liquidation, a court-appointed trustee contacts customers with filing instructions. The bankruptcy court sets a filing deadline, usually 60 days after public notice. Claims received more than six months after the publication date are barred from SIPC protection, with almost no exceptions.9SIPC. The Investor’s Guide to Brokerage Firm Liquidations
Keep documents that let you prove what you owned:
- Your last two or three account statements from the firm.
- Trade confirmations, canceled checks, and deposit receipts.
- Copies of any written complaints you sent to the firm and the responses you got back.
Claims can be submitted through the trustee or, for open cases, through SIPC’s website.10SIPC. How To File a Claim If you ever suspect unauthorized trades in your account, put your complaint in writing immediately. A written complaint at the time is usually the only way to later prove a trade wasn’t authorized; waiting, or verbally okaying the trade after the fact, can wipe out your ability to recover those losses.11Investor.gov. Securities Investor Protection Corporation