Learn about FDIC and SIPC protections and limits
Recent bank closures have led investors to question the safety of their own funds. Although these closures do not pose a systematic risk to the economy, it is important for investors to understand the coverage offered by FDIC-insured banks and SIPC-insured investments. The article provides an explanation of the basics.
What are FDIC-Insured Deposits?
FDIC-insured deposits refer to the funds held in deposit accounts that are backed by the Federal Deposit Insurance Corporation (FDIC). The FDIC is an independent agency of the federal government that was established in 1933 to protect depositors and maintain confidence in the U.S. banking system.
The FDIC-insured deposits cover a range of deposit accounts, including savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs). The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. Therefore, if an individual has accounts in different ownership categories, they may be eligible for more than $250,000 in FDIC insurance coverage.
In the event of a bank failure or closure, the FDIC will step in to protect depositors and ensure they receive their insured deposits. This means that if a bank fails, depositors can still access their funds, up to the insured limit, without losing any money.
Overall, FDIC-insured deposits provide a layer of security and peace of mind for depositors, knowing that their hard-earned money is backed by the full faith and credit of the U.S. government.
What are SIPC-Insured Investments?
SIPC-insured investments are securities held by an investment firm that is a member of the Securities Investor Protection Corporation (SIPC). SIPC is a non-profit organization created by Congress in 1970 to protect investors in case their brokerage firm fails.
SIPC's main objective is to return customers' securities and cash that are missing from their accounts when a brokerage firm fails. The organization covers up to $500,000 per customer, including up to $250,000 in cash.
SIPC-insured investments can include stocks, bonds, mutual funds, and other securities held by a brokerage firm. It is important to note that SIPC insurance doesn't cover any losses in the value of your investments, just the value of the missing securities up to the coverage limit.
Overall, SIPC-insured investments provide a safety net for investors in case their brokerage firm fails. However, investors should still conduct their due diligence and select trustworthy investment firms to reduce the likelihood of any potential losses.
Additional Coverage for Broker-Dealer Clients
Larger financial institutions like our Broker-Dealer Cetera Advisor Networks often have additional coverage in excess of the SIPC limits through private insurers. Our firm utilizes reputable custodians such as BNY Mellon's Pershing to safeguard our clients' brokerage accounts. In addition to SIPC protection, Pershing provides coverage in excess of SIPC limits from certain underwriters in Lloyd's insurance market and other commercial insurers.
The excess of SIPC coverage is valid through February 10, 2024, for Pershing LLC accounts. It provides the following protection for Pershing LLC's global client assets:
- An aggregate loss limit of $1 billion for eligible securities—over all client accounts
- A per-client loss limit of $1.9 million for cash awaiting reinvestment—within the aggregate loss limit of $1 billion*
In summary, while SIPC and FDIC provide important protection for investors and bank customers, it's essential to take additional steps to safeguard your investments and accounts. For example, investors may want to diversify their portfolios across different types of investments, such as stocks, bonds, and mutual funds. This can help reduce the impact of a potential loss in one area. It's also important to conduct thorough research before investing in any company or fund.