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SIPC versus FDIC

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A lost share, a falling share price and a bank deposit are different problems. Identify the product and the failed institution before choosing protection.

Custody protection, not performance protection

SIPC protects eligible missing customer property when a SIPC-member brokerage firm fails. Its limit is $500,000 per customer, including a $250,000 cash sublimit. Cash must be held for buying or selling securities. This is custody protection: a share price falling from $80 to $20 is not missing property.

FDIC insures deposits (checking, savings, money-market deposit accounts, CDs) at insured banks up to $250,000 per depositor, per bank, per ownership category. Stocks, bonds, mutual funds and annuities sold in a bank lobby are not deposits and are not insured.

Start with the product, then ask what happened. A money-market deposit account and a money-market mutual fund share words in their names, but only the first is a deposit. Buying a fund at a bank does not make it FDIC-insured. Any SIPC custody protection depends on the member brokerage holding the shares, not the location of the sales desk.

Exam terms

SIPC
Securities Investor Protection Corporation — protects eligible missing customer property at failed member brokerage firms.
FDIC
Federal Deposit Insurance Corporation — insures eligible deposits at FDIC-insured banks.
Ownership category
The way deposits are owned. Accounts in the same category at the same insured bank are added together; qualifying different categories can have separate coverage.
Market loss
A decline in investment value. Neither SIPC nor FDIC reimburses that price decline.

SIPC

Eligible missing property at a failed SIPC-member broker, with a $500,000 total limit including $250,000 for cash held for securities transactions.

FDIC

Deposits at an insured bank, up to $250,000 per depositor, per bank, per ownership category.

Neither

A fall in market value or losses from poor advice. Securities are not FDIC-insured merely because they were bought at a bank.

  • A SIPC-member brokerage firm fails and 200 eligible customer shares cannot be located.

  • An insured bank fails while holding a customer’s $40,000 savings balance.

  • A customer’s stock falls 60% after a bad earnings report.

  • A customer bought a mutual fund in a bank lobby and it lost value.

  • A failed SIPC-member broker is missing $30,000 of eligible customer cash held for buying securities.

Sort each situation to check yourself.

Both programs protect against an institution failing, never against an investment falling.

What each program covers and what neither covers.

Try it: Choose SIPC, FDIC or Neither with the buttons. After each choice, explain which product is involved, what happened and why the other programs do not fit.

The ruleMatch the product and event first. SIPC: eligible missing property at a failed member broker, $500,000 total including $250,000 cash. FDIC: deposits, $250,000 per depositor, insured bank and ownership category. Neither pays for a price decline.

The closest contrast

Money-market mutual fund at a SIPC-member broker: a security, with custody protection for missing shares if the broker fails. No FDIC deposit insurance.

Money-market deposit account at an FDIC-insured bank: an eligible deposit subject to the bank/category limit. No SIPC coverage for that bank deposit.

Same words, different product, different protector.

Worked example

Dana has one eligible customer claim at a failed SIPC-member broker: $320,000 in missing securities and $310,000 in missing cash held for securities transactions. Ignore recoveries from the firm and compare only the protection limits.

  1. The missing-property claim totals $630,000. The overall SIPC limit is $500,000, not $500,000 plus the cash sublimit.
  2. Apply both caps. At most $250,000 can be cash, and the combined securities/cash amount must stay within $500,000.
  3. For a limit illustration, $320,000 in securities plus $180,000 in cash fits both caps. This identifies the maximum total within the stated limits, not a required allocation or a predicted liquidation recovery.

Worked example

Mina holds a $190,000 savings deposit at one branch and an $80,000 CD at another branch of the same FDIC-insured bank. Both are in her name alone. The balances include accrued interest and she has no other deposits there.

  1. Savings and a CD are different products, but these accounts have the same depositor, bank and ownership category.
  2. Add $190,000 and $80,000: the category balance is $270,000. A second branch does not create a second insured bank.
  3. The standard FDIC limit covers $250,000; $20,000 is above that limit. Opening another account in the same category would not increase it.

Check yourself

Try a question, then read the explanation to review the rule.

Opening your study record…

Same rule, new context

Opening your study record…

Summary

  • SIPC: member broker fails and eligible customer property is missing. FDIC: eligible deposits at an insured bank.
  • $500,000 (incl. $250,000 cash) vs $250,000 per depositor per bank per category.
  • Neither reimburses market losses or bad advice. FDIC excludes securities wherever they are sold; SIPC concerns missing eligible property held at a member broker.

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