Key takeaways
- SIPC protects customers when a SIPC-member brokerage firm fails financially and cash or securities are missing from their accounts.
- The limit is $500,000 per customer in each separate capacity, of which up to $250,000 can be cash.
- SIPC does not protect against a fall in the value of your investments, bad advice or being sold worthless securities.
- Accounts in the same capacity are combined; an individual account, a joint account and an IRA are separate capacities.
- Unregistered investment contracts, commodity futures and crypto assets that are not securities are not protected.
SIPC says its logo means your assets are protected under the Securities Investor Protection Act. That is easy to read as insurance on your investments, and it is not, at least not in the way a bank deposit is insured. SIPC, the Securities Investor Protection Corporation, protects something narrower and still important: getting your cash and securities back if your brokerage firm fails and they are missing.
What SIPC is for
SIPC describes itself as a non-profit corporation created by Congress some 50 years ago, and its protection comes from the Securities Investor Protection Act (SIPA). The SEC's glossary calls it a non-government entity. Its job, in SIPC's words, is to recover missing cash or securities if your brokerage firm has gone out of business.
When a SIPC member becomes insolvent, the SEC explains, SIPC asks a court to appoint a trustee to supervise the firm's liquidation and process investors' claims. SIPC says it protects only the custody function of the broker-dealer: restoring the securities and cash that were in customers' accounts when the liquidation began.
The limits
| Item | SIPC limit |
|---|---|
| Securities and cash combined | $500,000 per customer, per separate capacity |
| Of which, cash | up to $250,000 |
SIPC adds that customers do not need to live in or be citizens of the United States to be protected.
Separate capacity, with SIPC's examples
Protection is counted per separate capacity, and accounts held in the same capacity are combined. SIPC's own examples:
| Situation | Protection |
|---|---|
| Mary has one account in her name | Up to $500,000 |
| Joe has two accounts, both in his own name | Combined: up to $500,000 in total |
| Joe and Mary also have a joint account | An additional maximum of $500,000 for the joint account |
| Joe has a Roth account and an IRA at the same firm | Up to $500,000 for each |
Two individual accounts do not double your protection; an individual account, a joint account and retirement accounts can.
What SIPC does not protect
SIPC is explicit about the gaps:
- Market losses. SIPC does not protect against a decline in the value of your securities, and does not "bail out" investors when stocks, bonds or other investments fall. In a liquidation, it replaces missing securities when possible.
- Bad advice and worthless investments. It does not cover losses from a broker's poor advice or inappropriate recommendations, or people who were sold worthless stocks.
- Certain products. Commodity futures contracts (outside special portfolio margining accounts), foreign exchange trades, and investment contracts and fixed annuities not registered with the SEC.
- Crypto. Digital asset securities that are unregistered investment contracts are not protected, even at a member firm, and neither is any crypto asset that does not qualify as a security under the Act.
- Non-members. SIPC protects only customers of member firms. The SEC advises confirming that both your brokerage firm and its clearing firm are members.
SIPC does protect stocks, bonds, Treasury securities, certificates of deposit, mutual funds and money market mutual funds as securities, and cash held at the firm for buying or selling securities.
SIPC versus FDIC, and where your cash sits
SIPC stresses that its protection is not the same as FDIC insurance at a bank, because SIPC does not protect the value of any security. Where your uninvested cash ends up matters, as the SEC's bulletin on cash sweep programs explains:
| Where uninvested cash goes | Protection described by the SEC |
|---|---|
| Bank sweep to FDIC-insured banks | FDIC insurance up to $250,000 per customer at each participating bank |
| Money market fund sweep | May be protected by SIPC, as a security |
| Left at the firm as a "free credit balance" | May be protected by SIPC |
The bulletin notes that a firm's default sweep program is often a bank sweep, and that rates and terms can differ significantly, so it is worth asking which option your account uses.
Habits that keep protection intact
The SEC's glossary adds two practical points. Report unauthorised trades to your broker in writing as soon as you notice them, because a written complaint is usually the only proof you complained. And make payments only to the brokerage firm itself, never to a sales representative or to an address other than the firm's business address. Other warning signs are collected in investment fraud red flags.
What a brokerage account is explains how accounts are opened. Learn to Trade Stocks Beginner, one of our education apps, uses virtual money only, so no real cash or securities are held. The investing basics hub lists related guides, including stocks versus bonds.
Good to know
Frequently asked questions
Does SIPC protect me if my stocks lose value?
What is the SIPC limit?
Is SIPC the same as FDIC insurance?
Does SIPC cover crypto?
Sources
- What SIPC Protects (opens in a new tab)Securities Investor Protection Corporation — accessed
- Investors with Multiple Accounts (opens in a new tab)Securities Investor Protection Corporation — accessed
- Securities Investor Protection Corporation (SIPC) (glossary) (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Cash Sweep Programs for Uninvested Cash in Your Investment Accounts – Investor Bulletin (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
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