FDIC Insurance: What is it and how does it work?

people, saving, cash, withdrawal and finance concept - customer hands with money at bank office or currency exchanger
people, saving, cash, withdrawal and finance concept - customer hands with money at bank office or currency exchanger

Insurance is an important piece of our lives. We need it to protect our family in case something happens to us or if we cannot work. We need it to protect our home and cars in case of an accident. But what about protection for our savings and investment accounts? That is equally as important as we have been reminded of the past few days. Here we will summarize the types of insurance that cover investors so you can make the best decisions for your money.

Federal Deposit Insurance Corporation (FDIC) is a U.S. federal agency that protects investors against the loss of their deposit accounts in the event of a failure of an FDIC-insured bank.

This FDIC website includes a great chart showing coverage limits by account ownership. Basic coverage is $250,000 per account holder per bank. A bank account owned by a couple is insured for up to $500,000 ($250,000 per owner).  The FDIC does not insure money invested in stocks, bonds, mutual funds or other investment products.

The Securities Investor Protection Corporation (SIPC) protects customers of member brokerage and investment institutions. For more specific details on coverages please go to www.sipc.org. SIPC covers up to $500,000 per customer for all accounts with the same owner, including $250,000 in cash.

Many large institutions have additional policies in place to protect the assets of their clients.  Charles Schwab has a policy with Lloyd’s of London and other London insurers with excess SIPC coverage limited to a combined return to any customer up to $150 million, including up to $1,150,000 in cash. TD Ameritrade provides each client $149.5 million worth of protection for securities and $2 million of protection for cash through supplemental coverage provided by London insurers. This protection becomes available if the SIPC limits are exhausted and client accounts have not been made whole.

If you have any questions or worries about your saving or investment accounts, please reach out. I’d be happy to chat.

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