SIPC Protection: What Happens If Your Brokerage Firm Fails — In Plain Words

This page is educational only. It is not financial advice.

The short answer

If your brokerage firm goes out of business and is a member of the Securities Investor Protection Corporation (SIPC), then your cash and securities held by the brokerage firm may be protected by SIPC coverage up to $500,000, including a $250,000 limit for cash.

That is the whole shape of SIPC protection as the SEC bulletin this page is based on states it. The rest of this page gives that same bulletin material in plain order: what happens when a member firm fails, what the protection applies to, and what it does not protect against.

What happens when a SIPC member firm fails

If a SIPC member fails and cannot meet its obligations to customers, SIPC will ask a court to appoint a trustee to supervise the firm’s liquidation and to process investors’ claims.

The bulletin states the process only that far, and this page states it only that far. It gives no claim-filing steps beyond that sentence.

What SIPC protection applies to

SIPC protection applies to most types of securities, such as stocks, bonds, and mutual funds.

The protection the bulletin describes is for cash and securities held by the brokerage firm, up to $500,000, including a $250,000 limit for cash.

What SIPC does not protect against

SIPC does not protect you against losses caused by a decline in the market value of your securities.

It does not provide protection for investment contracts not registered with the SEC.

SIPC protection is not FDIC deposit insurance. FDIC coverage is a different protection, for deposit accounts at banks — the next section explains it the way the bulletin does.

Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects the funds depositors place in banks and savings associations.

FDIC insurance covers all deposit accounts at FDIC banks and savings associations, including checking and savings accounts, money market deposit accounts, and certificates of deposit.

The standard insurance amount is $250,000 per depositor (that is, per brokerage customer), per insured bank, for each account ownership category.

Cash swept into deposit accounts through a brokerage firm’s bank sweep program is covered by FDIC insurance up to the $250,000 limit per customer at each FDIC-insured bank that participates in the bank sweep program.

Any cash in these accounts that exceeds the $250,000 limit will not be protected by FDIC insurance.

You can determine how much cash is in your bank sweep accounts from your brokerage account statements or by contacting your brokerage firm.

For what a brokerage account is and what opening one involves, see the companion page “What Is a Brokerage Account — In Plain Words,” which carries this same bulletin’s SIPC paragraph at summary depth.

This page is educational only. It is not financial advice.