Understanding the FDIC and SIPC: Insuring Your Deposits and Investments

The Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) are two federally sponsored agencies that offer protections for consumers who deposit money into banks or invest in securities. The FDIC operates independently of the federal government and collects insurance premiums from member banks and is backed by the full faith and credit of the US government. The SIPC also operates independently of the federal government, but membership is mandated by federal law for all US broker-dealers. 

The FDIC was created during the Great Depression to prevent bank runs and insure deposits in case a bank failed. It guarantees member bank accounts up to $250,000 per depositor, per ownership category, per participating bank, and this coverage lasts up to six months after the account holder's death. FDIC insurance might be higher for accounts with beneficiaries tied to them. The FDIC covers several types of accounts, including checking, savings, money market, certificates of deposit (CDs), and some investment accounts. However, some holdings in investment accounts such as mutual funds, stocks, bonds, annuities, and cryptocurrency are not covered by the FDIC. 

To determine your uninsured amount, you can use the FDIC's tool called EDIE: (https://edie.fdic.gov/index.html). A good rule of thumb is that if you have more than $250,000 in cash at a single bank, you should check the FDIC coverage, even if the money is held in different accounts with different titling. For your investment accounts, cash can be held overnight at an FDIC-insured institution if you are enrolled in a bank sweep program. 

The SIPC was established in 1970 under the Securities Investor Protection Act (SIPA) to protect investors in case of broker-dealer insolvency or fraud. It guarantees that investors will not lose cash or shares of securities held in their accounts up to a certain dollar limit, but it does not protect against losses or guarantee any value for securities. The SIPC covers non-FDIC covered cash and securities and negotiates on behalf of victims of fraud and works to reimburse them. 

Determining the protection on SIPC covered accounts is much simpler than FDIC covered accounts. SIPC covered accounts are protected up to $500,000 per institution, per account type (i.e. individual, joint, IRA, Roth IRA, etc.) including a limit on cash of $250,000. The SIPC definition of cash is generally limited to only US currency and a security is broadly defined but does not cover foreign currency, commodities, futures contracts, or warrants. 

In summary, the FDIC and SIPC provide important protections for consumers who deposit money into banks or invest in securities. While they are not designed to protect against all forms of loss, they offer valuable safeguards against insolvency or fraud. It is important to be aware of the coverage limits and exclusions of these programs and to seek additional protections as necessary.

- Kyle McCune, CFP®, Worley Erhart-Graves Financial Advisors