FDIC And SIPC Protection
In the wake of the Silicon Valley Bank failure, many are starting to pay more attention to those four-letter acronyms—FDIC and SIPC—and what those letters signify and protect. Our hard-earned savings can be in banks and/or invested in the market and the latest news has us asking the question: Are we protected when an institution fails?
FDIC and SIPC both offer protection of your assets, but they are not the same when it comes to what they protect and the amount of protection.
FDIC
The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency the protects deposits at banks and other financial institutions. It was established in 1933 and covers over 5,000 member institutions. It does not insure credit unions, which are insured by the National Credit Union Administration.
FDIC insures deposits in:
- Checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposits (CDs)
- Negotiable Order of Withdrawal (NOW) accounts
- Cashier’s checks and money orders
FDIC does NOT insure:
- Safe deposit boxes or their contents
- Stock and bond Investments
- Mutual funds
- Crypto Assets
- Annuities/Life Insurance policies
- Municipal securities
- US Treasury bills, bonds, or notes (these investments are backed by U.S. government)
The insurance limit is $250,000 per depositor, per insured bank for each ownership category. If you have multiple accounts in the same bank, the $250,000 cap does not necessarily apply to each account, but it would insure different ownership categories.
| Ownership Category | Type of Deposit Account | Coverage Limit |
| Single Account (no beneficiaries) | Checking, savings, money market | All single accounts owned by the same person at the same bank are added together and insured up to $250,000. |
| Joint Account (no named beneficiaries) | Deposit account owned by two or more living people with equal rights of withdrawal and signature authority | Each co-owner’s shares of every joint account at the same bank are added together and insured up to $250,000. |
| Revocable Trust Accounts* (Can be owned by one or more people and identities one or more beneficiaries who will receive the deposits upon the owner[s]’ death) | This includes both formal trusts, such as Living Trusts, and informal such as “in trust for” (ITF), “payable on death” (POD) and “transfer on death” (TOD) accounts | All revocable trust accounts owned by the same person at the same bank are added together and the owner is insured up to $250,000 per beneficiary. |
| Irrevocable Trust Account* | Deposit account established by written agreement where depositor gives up all power to cancel or change the trust | Irrevocable trusts typically have contingent interests which results in the trust being insured up to a maximum of $250,000 regardless of number of beneficiaries. If beneficiary is non-contingent, the same rules as Revocable trusts apply. |
| Retirement Accounts | This includes IRAs and self-directed plans, as well as 457 plans |
All retirement accounts owned by the same person at the same bank are added together and insured up to $250,000. |
*Note that the rules for revocable and irrevocable trusts are changing as of 4/1/2024. The new rule simplifies the current rules and no longer distinguishes between revocable and irrevocable trusts or contingent and non-contingent beneficiaries. Trust deposits under the new rule are insured up to $250,000 per beneficiary (not to exceed five).
FDIC’s Electronic Deposit Insurance Estimator (EDIE)
If you’re still wondering about what you have covered, the FDIC website has a calculator that allows you to enter one FDIC-insured bank at a time and your accounts at that bank to determine your insurance coverage. Click here to access the estimator: EDIE
SIPC
SIPC is a non-profit membership corporation created under the Securities Investor Protection Act. The mission of SIPC is to oversee the liquidation of member firms that close when in financial straits or bankrupt. SIPC is not the securities world equivalent of FDIC; it is not a regulator or a U.S. government agency.
SIPC’s protection for each customer is up to $500,000 for securities and cash ($250,000 limit for cash only). SIPC’s mission is to restore a customer’s securities and cash when the firm liquidation begins.
What SIPC protects:
- Stocks
- Bonds
- Treasury securities
- Certificates of deposit
- Mutual Funds and Money Market Mutual Funds
- Cash
What SIPC does NOT protect:
- Currency
- Commodity futures contracts, unless held in a special account
- Investment and fixed annuity contracts not registered with the US Securities Exchange Commission
- A decline in the value of your securities due to market fluctuations and risk
- Being sold a worthless stock or security
- Losses due to bad investment advice
- Losses or declines due to recommendations of inappropriate investments
Multiple Accounts and SIPC
SIPC protection is determined by separate capacity and each separate capacity is protected up to $500,000 for securities and cash ($250,000 limit for cash only). Accounts held in the same capacity are combined for purposes of the coverage.
Examples of Separate Capacities:
- Individual account
- Joint account
- Corporate account
- Trust account
- IRA
- Roth IRA
- Estate account
- Guardian account
Insurance in excess of SIPC
Many brokerage firms carry insurance in addition to SIPC. This coverage is not provided by SIPC but by private insurers. If you are a client of HFA, our custodian, Fidelity through National Financial Services, carries the maximum excess of SIPC protection currently available in the brokerage industry ($1 billion excess of SIPC coverage). For more information on Fidelity and asset protection, click the link here: Helping to Safeguard Your Assets Brochure | Fidelity Institutional.
If you have any questions about SIPC or FDIC or about your personal coverage, contact your advisor. For more information on FDIC and SIPC, visit their websites at FDIC and SIPC.