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Certain financial terms look like an alphabet soup of letters (and sometimes numbers). However, it’s worth knowing the definitions of and understanding SIPC insurance vs FDIC.

SIPC stands for “Securities Investor Protection Corporation” and FDIC stands for “Federal Deposit Insurance Corporation.”

FDIC and SIPC are both a type of insurance that offers protection for your money, but that’s where the similarities end.

We’ll take a look at SIPC vs. FDIC to help you decide which is best for you, help you understand whether your account is insured and why you need one or the other. Take a look at the chart below for a quick overview.

  SIPC FDIC
What it covers Brokerage-held securities and cash Funds in deposit accounts
Coverage limit $500,000 for securities and $250,000 for cash reserves $250,000 per depositor, per insured bank, for each account ownership category
When it applies When a brokerage firm fails When a bank fails
How it works You can receive money up to these limits based on your account totals at the failed firm. You receive money if your deposit bank closes, covering up to the coverage limit.

What is SIPC insurance?

The SIPC, which was created as part of the Securities Investor Protection Act of 1970, is a nonprofit corporation that protects investors against losses if their brokerage firm fails. In short, you’re protected if you have money in an account with a firm and it goes under. However, not every brokerage is a SIPC member. It’s important that you choose a brokerage that is a member — just in case the worst were to happen. It’s a good idea to do your due diligence when choosing a brokerage for investment purposes.

What does it cover?

The SIPC protects investors against the loss of cash and securities like stocks and bonds, Treasury securities, certificates of deposit (CDs), mutual funds, money market mutual funds and other securities. However, it’s important to note that the SIPC does not protect the following:

  • Commodity futures contracts unless held in a special portfolio margining account
  • Foreign exchange trades
  • Investment contracts (such as limited partnerships)
  • Fixed annuity contracts not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933

What happens if you receive poor investment advice? Does the SIPC protect you? The answer is no. If your securities drop in value, the SIPC does not protect you, nor does it protect you if you’re sold worthless stocks and other securities. Its sole focus is restoring investor cash and securities as swiftly as possible after a member brokerage fails.

While SIPC was created through an act of Congress, it’s not a government agency or organization. Because of this, it has no authority to investigate fraud or regulate shady broker dealings and poor investment advice. (The Financial Industry Regulatory Authority, or FINRA, a not-for-profit organization, regulates this kind of behavior.) Plus, SIPC doesn’t cover stock market losses or other costs associated with normal investing risk.

SIPC coverage amount

The SIPC insures up to $500,000 in total coverage per customer for lost or missing assets of cash and/or securities. Cash within a customer’s account not yet invested in securities can also be protected ($250,000).

How many investors have received help with SIPC coverage? From its inception in 1970 through December 2020, the SIPC put forth $3.1 billion to recover $141.8 billion in assets for an estimated 773,000 investors.

What is FDIC insurance?

Is my money safe in the bank? Yes, as long as your funds are in an FDIC-insured bank account at a bank like Ally Bank.

The FDIC, which was created in 1933, is an independent agency of the United States government that provides insurance for your bank deposits in the event that your FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.

If your bank isn’t a member of the FDIC, it could be bad news. It means that if the institution files for bankruptcy, closes or suffers another type of financial hardship, your money isn’t insured. While many banks are FDIC insured, not all are. Know whether your financial institution is FDIC insured before you choose where to store your money.

What does it cover?

Deposit products insured by the FDIC include the following:

  • Checking accounts
  • Savings accounts
  • CDs
  • Money market deposit accounts

Investment products that are not deposits, such as mutual funds, annuities, life insurance policies and stocks and bonds, are not covered by FDIC deposit insurance.

FDIC coverage amount

The amount of FDIC insurance coverage you may be able to get depends on how you hold your funds, which can be in single accounts, certain retirement accounts, employee benefit plan accounts, joint accounts, trust accounts and business accounts as well as government accounts.

The standard insurance amount is $250,000 in deposits, which includes principal and accrued interest. Learn more about how to maximize FDIC coverage.

SIPC vs. FDIC: Deciding which is right for you

You’ll be able to identify the type of coverage you need based on the investments you have. If you have money in a brokerage account, it’s a good idea to ensure that you have SIPC insurance. If you have money in a bank account, it’s a good idea to ensure that you have FDIC insurance. Not having either can spell bad news in case of financial institution failure.

How to know if your account is insured?

Now that you know the difference between FDIC and SIPC, it’s important to find out whether your bank(s) and brokerage(s) are members of their respective organizations.

Ally Bank is FDIC insured. If your current financial institution isn’t insured, browse our banking options to see if our offerings align with your financial goals.

Investors, take note: Ally Invest is a member of the SIPC, so you can take that into consideration when selecting a brokerage.

SIPC vs. FDIC: Why you need them

FDIC vs SIPC: Neither is “better” than the other, and in fact, you need both depending on the types of accounts you have.

Most banks and brokerages are covered, but it doesn’t hurt to double check. Both the FDIC and SIPC offer searchable databases of their members, so double check that you’re currently banking and investing with insured institutions.

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