Lesson 7.5 · 5 of 5 · Tax, pensions and protection where you live
SIPC and FDIC: what protects you if a US broker or bank fails
If a US brokerage firm fails, SIPC restores missing cash and securities up to $500,000 per customer, of which up to $250,000 in cash. Bank deposits are insured by the FDIC up to $250,000 per depositor, per bank, per ownership category. Neither protects you from a fall in prices.
Terms in this lesson
- Investor compensation scheme
- The protection that returns your cash and shares, up to a limit, if your broker goes bankrupt.
- Broker
- The firm through which you buy and sell stocks, ETFs and other investments.
- Crypto exchange
- The website or app where you buy and sell crypto with dollars, euros or other currencies.
Opening question
Your US broker goes bust. Over the past year your shares fell from $50,000 to $30,000. What does SIPC protection do for you?
SIPC restores what the failed firm should be holding for you: your shares and cash, at their value now. It does not make up for the fall from $50,000 to $30,000; that is market risk, and no scheme covers it.
It does not matter if you get it wrong: trying first helps you remember.
What SIPC covers if your brokerage firm fails
Definition
What is SIPC?
A non-profit corporation created by Congress that steps in when a member brokerage firm fails.
Most US brokerage firms must be members of SIPC, the Securities Investor Protection Corporation. If a member fails and customers’ cash or securities are missing, SIPC restores them up to its limits. It covers stocks, bonds, Treasury securities, CDs, mutual funds and money market funds held at the firm.
The limits apply separately to each account “capacity”: individual, joint, IRA, Roth IRA, trust and others.
Work it out
Under the SIPC limits in force in 2026 ($500,000 per customer, of which at most $250,000 in cash), your individual account at a failed broker should hold $350,000 of shares and $200,000 of cash, and all of it is missing. How many dollars are left uncovered by SIPC?
A hint
The cash is under the cash limit. What about the total?
How sure are you?
Your claim is $550,000. The $200,000 of cash is within the $250,000 cash limit, but the total is capped at $500,000, so $50,000 is left over. In practice, customers first share in the assets the trustee recovers, so the uncovered part is often smaller.
Check yourself
At the same failed broker you have an individual account worth $400,000 and a Roth IRA worth $300,000. With SIPC’s limit of $500,000 per capacity in 2026, how much of it falls within SIPC’s limits?
An individual account and a Roth IRA are separate capacities, each protected up to $500,000. Two individual accounts in your name, though, would share a single limit.
FDIC insurance: cash at the bank and at your broker
Definition
What does the FDIC insure?
Bank deposits, up to $250,000 per depositor, per bank, per ownership category.
Checking and savings accounts, money market deposit accounts and CDs at an FDIC-insured bank are covered. Stocks, bonds, mutual funds, annuities, crypto and even US Treasury securities are not, even when you buy them through a bank. Credit unions have the same $250,000 cover through the NCUA. Since the FDIC was founded in 1933, no depositor has lost any FDIC-insured money.
Work it out
With the FDIC limit in force in 2026 ($250,000 per depositor, per bank, per ownership category), you hold $300,000 in a single savings account in your own name at one insured bank. How many dollars are above the insured limit?
This exercise is in the free account, where we also save your progress.
Create a free accountSegregation: why your shares are not the broker’s money
Ready to start?
Why doesn’t a broker’s failure take your shares with it?
Brokers must keep clients’ assets apart from their own.
Under the SEC’s customer protection rule (Rule 15c3-3), a broker must keep customers’ fully paid securities in its possession or under its control, and set aside cash owed to customers in a special reserve bank account. When a firm fails, those assets are there to be returned.
- A court appoints a trusteewho takes over the firm’s books and assets
- Accounts are movedif the records are accurate, often to another brokerage firm
- You file a claimby the deadline, even if your account was moved
- SIPC fills the gapif anything is missing, up to its limits
Check yourself
Your broker fails, but it kept customer assets properly segregated. What is most likely to happen to your shares?
This exercise is in the free account, where we also save your progress.
Create a free accountWhat SIPC and the FDIC do not protect
- Falling pricesNo scheme covers losses because your investments lost value, or losses from bad advice.
- Most cryptoDigital assets that are not securities, including stablecoins, are not covered by SIPC, and crypto exchanges are often not SIPC members at all. The FDIC does not insure crypto either.
- Futures, forex and CFDsCommodity futures and foreign exchange trades are outside SIPC. CFDs are not allowed for ordinary US investors; firms offering them are usually offshore, beyond US protection.
- Unregistered investmentsInvestment contracts not registered with the SEC, such as some limited partnerships, are not covered, and nor are firms that are not SIPC members.
Myth or fact?
“My bitcoin at a crypto exchange is protected by SIPC, just like my shares at a broker.”
This exercise is in the free account, where we also save your progress.
Create a free accountWhat would you do?
You read that your broker is in financial trouble. Your account holds $40,000 of ETFs. What do you do?
This exercise is in the free account, where we also save your progress.
Create a free accountWhat you learned
- SIPC restores missing cash and securities up to $500,000 per customer and capacity, including up to $250,000 in cash.
- The FDIC insures bank deposits up to $250,000 per depositor, per bank, per ownership category, but not stocks, funds or crypto.
- Brokers must keep client assets apart from their own, and no scheme covers losses from falling prices.
You reached the end
Keep what you learned
With a free account we remember your lessons, bring back the questions you got wrong exactly when you need them and keep your streak.
Save your progress with a free accountLessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: SIPC.org (What SIPC protects, Investors with multiple accounts, How a liquidation works, About SIPC), FDIC.gov (Understanding deposit insurance), NCUA.gov (Share insurance coverage), FINRA 2026 Annual Regulatory Oversight Report on Exchange Act Rule 15c3-3; checked on 29 October 2026.