Brokerage accounts are not covered by FDIC insurance

The FDIC only insures deposits held in banks and credit unions — money sitting in savings accounts, checking accounts, and money market accounts. A brokerage account is different. It holds investments like stocks, bonds, and mutual funds, not deposits. Because of that difference, the FDIC does not insure them, even if the brokerage is a large, well-known company.

This does not mean your money in a brokerage account has no protection at all. It means the protection comes from a different source and works in a different way. Understanding what is and is not covered matters before you move money into investments.

Key Takeaways

  • The FDIC insures bank deposits up to $250,000 per account owner per bank, but does not insure stocks, bonds, or other investments held in brokerage accounts.
  • Brokerage accounts are protected by SIPC (Securities Investor Protection Corporation) insurance, which covers up to $500,000 per account if the brokerage firm fails, but does not cover investment losses.
  • SIPC protection only applies if your brokerage goes out of business — it does not protect you if your investments lose value or if you make a poor investment choice.
  • If you hold both a bank deposit account and a brokerage account at the same institution, they are insured separately under different rules.

What SIPC insurance covers instead

When a brokerage firm fails or goes bankrupt, the Securities Investor Protection Corporation (SIPC) steps in. SIPC is a nonprofit organization created by Congress to protect investors when a brokerage collapses. It covers up to $500,000 per customer per brokerage firm — including up to $250,000 in cash held in the account.

This protection is real and important, but it is narrow. SIPC covers the brokerage's failure, not market losses. If you own 100 shares of a stock and the stock price drops by half, SIPC does not reimburse you. If you made a bad investment decision, SIPC does not cover that either. SIPC only steps in if the brokerage itself becomes insolvent and cannot return your securities or cash to you.

Many large brokerages also carry additional insurance beyond SIPC through private insurers, but you should check your specific brokerage's website to see what they offer. The amount and type of extra coverage varies.

The difference between a bank account and a brokerage account

A bank account holds money — your deposits. The bank lends that money out and pays you interest. The FDIC insures the money itself because it is a deposit. A brokerage account holds investments — securities that you own. The brokerage holds them for you and executes trades, but you own the underlying assets, not the cash.

Because you own the securities directly, not a deposit, the insurance model is different. If your brokerage fails, the goal is to return your actual securities to you (your stocks, bonds, or mutual funds), not to reimburse you in cash. SIPC ensures that happens. If the brokerage cannot return your securities, SIPC covers the cash value up to the limit.

This is why you might see a brokerage account and a savings account at the same institution treated as completely separate. Your $50,000 in a savings account is FDIC insured. Your $50,000 in a brokerage account at the same place is SIPC insured under different rules. They do not count against each other.

When SIPC protection does not explore

SIPC does not cover fraud by the brokerage or its employees if you authorized the transaction. If a broker convinces you to make a bad investment and you sign off on it, SIPC does not reverse it. You would need to pursue a separate claim through arbitration or court.

SIPC also does not cover losses from market downturns, poor investment performance, or your own trading mistakes. If you buy a stock at $100 and it falls to $50, that is a market loss, not a brokerage failure. SIPC has no role.

Additionally, SIPC protection is per brokerage firm, not per account. If you have accounts at two different brokerages, each account is covered separately up to $500,000. But if you have two accounts at the same brokerage, the $500,000 limit applies across both accounts combined.

How to check if your brokerage has SIPC coverage

Most brokerages in the United States are required to be SIPC members if they are registered with the SEC (Securities and Exchange Commission). You can verify this on the SIPC website, which has a search tool where you enter your brokerage's name. The search will tell you whether the firm is a member and what coverage applies.

Your brokerage should also disclose SIPC coverage in its account agreement or on its website, usually in a section about investor protection or account security. If you cannot find it, contact the brokerage directly and ask whether they are a SIPC member and what the coverage limits are.

Some brokerages also purchase additional insurance from private carriers. This extra layer is separate from SIPC and may cover more than the SIPC limits. Check your brokerage's disclosures to see whether they offer this.

What to do if you are concerned about protection

If you want the highest level of protection for cash you are not investing yet, keep it in an FDIC-insured bank or credit union account instead of a brokerage money market account. FDIC coverage is straightforward and covers the full amount up to $250,000 per account owner per institution.

If you are moving money into investments and want to spread your risk across multiple brokerages, remember that SIPC coverage is per firm. Having accounts at two different brokerages means each account is covered separately. This can be a reasonable strategy if you have more than $500,000 to invest.

Before opening a brokerage account, read the account agreement or call the brokerage and confirm the SIPC coverage limits and any additional insurance they carry. Knowing what is protected and what is not helps you make a clearer decision about where to hold your money.

Frequently Asked Questions

If my brokerage goes out of business, will I get my money back?

SIPC will work to return your securities to you. If that is not possible, it will reimburse you in cash up to $500,000 per account (with a $250,000 limit on cash specifically). The process can take weeks or months, but you should recover your holdings or their value.

Does SIPC cover me if I lose money on a stock I bought?

No. SIPC only covers losses from the brokerage firm's failure, not from market losses or poor investment choices. If a stock you own drops in value, that is your loss as the investor, not a brokerage failure.

Can I have more than $500,000 protected at one brokerage?

No. SIPC coverage is $500,000 per customer per brokerage firm. If you have more than that to invest, you would need to open accounts at different brokerages to have each account covered separately.

Is a money market account in a brokerage covered by SIPC or FDIC?

It depends on the structure. If it is a brokerage money market fund (a security), it is covered by SIPC. If it is a cash deposit held at a bank through the brokerage, it may be FDIC insured. Check your brokerage's documentation to see which type you have.

What if my brokerage is also a bank?

Some large institutions are both a bank and a brokerage. Your bank deposits are FDIC insured, and your brokerage investments are SIPC insured. They are separate accounts under different rules, even though they are at the same company.