What Is SIPC Insurance?
SIPC protects your brokerage account if your broker fails. But it doesn't protect against market losses. Here's what you need to know.
SIPC Coverage Limits
What SIPC Does
The Securities Investor Protection Corporation (SIPC) is like FDIC for brokerage accounts. If your broker goes bankrupt and can't return your securities or cash, SIPC steps in to recover your assets or compensate you.
Key point: SIPC protects against broker failure, not market losses. If your stocks drop 50%, SIPC doesn't help. If your broker collapses and loses your stocks, SIPC does.
What SIPC Covers
- Stocks and ETFs held at a failed broker
- Bonds held at a failed broker
- Cash waiting to be invested (up to $250,000)
- Mutual funds
- Options
What SIPC Does NOT Cover
- Market losses — if your investments drop in value, that's your loss
- Cryptocurrency — not considered securities under current rules
- Commodity futures — covered separately by different regulations
- Investment advice losses — bad recommendations aren't covered
- Fraud by your financial advisor (separate from broker failure)
How SIPC Recovery Works
- Broker fails and can't return customer assets
- SIPC trustee appointed to liquidate the firm
- Securities returned to customers when possible
- SIPC fund pays any shortfall up to limits
In most cases, customer securities are simply transferred to another broker. SIPC payment only happens when securities are missing.
Separate Account Types = Separate Coverage
Different account types get separate SIPC coverage:
- Individual brokerage account: $500,000
- Joint brokerage account: $500,000 (separate)
- Traditional IRA: $500,000 (separate)
- Roth IRA: $500,000 (separate)
So a married couple with individual, joint, and IRA accounts at the same broker could have up to $2.5 million in combined SIPC coverage.
Excess SIPC Insurance
Many brokers carry additional private insurance beyond SIPC limits:
- Fidelity: Additional coverage through Lloyd's (total varies by account)
- Schwab: $600 million aggregate excess coverage
- Interactive Brokers: Up to $30 million per customer
- E*TRADE: Additional SIPC coverage through Lloyd's
For accounts over $500,000, this excess coverage provides extra peace of mind.
SIPC vs FDIC
| Feature | SIPC (Brokers) | FDIC (Banks) |
|---|---|---|
| Coverage limit | $500,000 | $250,000 |
| Cash limit | $250,000 | $250,000 |
| Protects against | Broker failure | Bank failure |
| Backed by | Industry fund | US Government |
| Covers investments? | Yes | No |
Is My Broker SIPC Member?
All legitimate US brokers must be SIPC members. You can verify at sipc.org. Major brokers like Fidelity, Schwab, Robinhood, Webull, E*TRADE, and Interactive Brokers are all members.
Has SIPC Ever Been Used?
Yes. Notable cases include:
- Lehman Brothers (2008): SIPC facilitated transfer of 110,000 customer accounts
- MF Global (2011): ~$1.6 billion in customer funds missing, SIPC helped recover most
- Bernie Madoff (2008): SIPC trustee recovered billions for victims
In most broker failures, customer assets are simply transferred to another broker with no loss.
What About Cryptocurrency?
Crypto held at brokers is generally NOT covered by SIPC. This includes:
- Bitcoin held at Robinhood
- Crypto at Webull
- Crypto at any traditional broker offering crypto
Some brokers offer separate insurance for crypto holdings, but it's not SIPC. Check your broker's specific crypto protection.
The Bottom Line
SIPC provides important protection if your broker fails—up to $500,000 per account. But remember:
- It doesn't protect against market losses
- Crypto isn't covered
- Large brokers also carry excess insurance
- Different account types have separate coverage
The biggest risk to your portfolio isn't broker failure—it's market risk. SIPC is a backstop, not a guarantee of profits.