It was an eventful week in the banking industry as not one, but two, banks went under in the past few days, raising public concern. Luckily, there are protections in these cases, and account holders at both banks will be able to access their money. So what are these protections, and how do they work?
FDIC – stands for Federal Deposit Insurance Corporation, which is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. According to its website, “the FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.”
- FDIC insures bank accounts (including checking accounts, savings accounts, and certificates of deposit) but not brokerage accounts. (More on those later.)
- You do not have to opt into the insurance – it is automatic as long as you are banking with a FDIC-insured institution. (Unsure of whether your bank is FDIC-insured? Check here.)
- FDIC insurance gives you $250,000 in coverage per bank (not per account). It’s a good idea to add up your balances to see if they exceed $250,000. If so, you may want to move some to another bank.
- If two people set up a joint account together, they each get $250,000 in protection, so the account could total up to $500,000 while still being fully protected.
SIPC – Securities Investor Protection Corporation is a non-profit that was founded in 1970 as part of the Securities Investor Protection Act. SIPC protects brokerage and investment accounts.
- SIPC generally covers up to $500,000 of securities and cash per account. (Cash is subject to a $250,000 limit).
- People who have multiple different types of accounts – for example, a trust, a traditional IRA, a Roth IRA, and an individual brokerage
account – would be entitled to $500,000 coverage for each account. However, if a person has two of the same type of accounts (for example two individual brokerage accounts) at the same firm, he/she would only be entitled to $500,000 total coverage for both accounts. - Two people sharing a joint account would each be entitled to $500,000 in coverage.
- Most, but not all, brokerage firms are SIPC members. To double check if yours is, click here.
- In addition to SIPC, many brokerage firms carry supplemental insurance policies to more fully protect customer accounts.
The good news is, in most cases your assets are protected by FDIC (banks) or SIPC (brokerage firms). It’s always a good idea to check with your banker, broker or financial advisor about the insurance limits on your accounts, and to assess whether the amounts you have deposited exceed the insured amount. Understanding what insurance and protections are available is a vital step in shielding your hard-earned nest egg.
Note: The information provided herein does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available here are for general informational purposes only.
