At a time when Americans are saving more than ever, you need to know how your money is insured.
The Federal Deposit Insurance Corp. covers bank deposits. The Securities Investor Protection Corp. protects brokerage accounts.
Savings protection: Established during the Great Depression, the FDIC ensures that bank deposits are safe, even if the bank goes under.
The FDIC, which is funded by premiums paid by banks and savings associations, protects up to $250,000 in individual deposit accounts and up to $250,000 for each person’s share of joint accounts.
FDIC insurance covers money in checking, savings and money market deposit accounts, along with certificates of deposit and official items issued by a bank, such as cashier’s checks and money orders.
The coverage extends to depositors’ accounts at each insured bank, including IRAs, living trust accounts and payable-on-death accounts.
To determine whether a bank is FDIC insured, look for the FDIC sign at the bank, go to www.fdic.gov or call (877) 275-3342. You can find out if your accounts are fully covered with the FDIC’s Electronic Deposit Insurance Estimator at https://edie.fdic.gov.
Brokerages are required by law to keep customers’ investments separate from their own funds, but if the firm fails and customers’ assets go missing — due to theft, fraud or unauthorized trading, for example — SIPC can replace customers’ cash and securities.
It doesn’t get involved until the firm has exhausted all other options. (Look for the SIPC disclosure on a brokerage firm’s website, or check the membership directory at www.sipc.org.)
SIPC isn’t a government agency and can’t investigate fraud at brokerage firms. That’s up to Finra, the industry’s self-regulatory organization, and the Securities and Exchange Commission, which refers brokerage failures to SIPC. After that, SIPC will file an application in federal district court, which will notify customers.
SIPC first divides up the broker’s remaining assets among investors, then uses its own funds — up to $500,000 per account, with a limit of $250,000 in cash — to buy the same number of shares you originally owned and replace your cash.
Depending on the amount of property the brokerage is able to recover, you may receive more than $500,000, said Josephine Wang, CEO of SIPC. SIPC has been successful in making most customers whole, she said.
If your bank fails, you don’t have to do anything — the FDIC will mail you a check. But if your brokerage fails, you must file a claim, and you should do it as soon as possible. If your securities decline in value after you file your claim, you won’t be reimbursed for losses that occur while your account is in limbo.
