SIPC Explained: What Protects Your Brokerage Account if a Broker Fails
SIPC coverage is listed at the bottom of nearly every brokerage website, yet few investors know what it actually covers. This guide explains the $500,000 limit, the separate cash limit, how account types count, what SIPC never covers, and how bank sweeps and excess coverage fit in.
Scroll to the bottom of almost any US brokerage website and you will see the words "Member SIPC." It is meant to reassure you, and it should, but only once you know what it actually does. SIPC is not a guarantee against losing money in the market, and it is not the same thing as FDIC insurance on a bank account. It is a specific safety net for one specific problem: a brokerage firm that fails with customer assets missing.
If you have recently opened a brokerage account or are moving a large balance to a new firm, here is how that protection works and where it stops.
What SIPC is
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation created by Congress under the Securities Investor Protection Act of 1970. Most broker-dealers registered with the SEC are required to be members, and they fund it through assessments.
SIPC is not a government agency and it is not a regulator. It doesn't police brokers; the SEC and FINRA do that. Its role starts when a member firm fails financially and customer property is missing. In that case, SIPC typically works with a court-appointed trustee to return customers' securities and cash, either by moving accounts to another brokerage or by distributing assets directly.
The first line of defense: segregation
Before SIPC even comes into play, there is an important rule working in your favor. Under the SEC's Customer Protection Rule, broker-dealers must keep customers' fully paid securities and cash separate from the firm's own assets and maintain a reserve for customers.
When a broker fails and its books are in order, customer assets are generally there to be returned. SIPC coverage matters most when something has gone wrong, such as when records are wrong, assets were misused or there is a shortfall.
The coverage limits
SIPC protects up to $500,000 per customer, which includes a maximum of $250,000 for cash. A few points matter:
- The cash limit is part of the $500,000, not on top of it.
- Coverage applies to the securities and cash that should have been in your account when the firm failed. It restores what is missing, not what you paid or what you hoped it would be worth.
- Where possible, SIPC returns the actual securities. If it can't, it pays their value as of the date the liquidation started.
How account types add up
Protection is counted per customer in each separate capacity. Different legal ownership types are treated as separate customers. Examples include:
- An individual account in your name.
- A joint account with your spouse.
- A traditional IRA and a Roth IRA, each in its own capacity.
- A trust account.
- A custodial account for a minor.
So one person with an individual taxable account and an IRA at the same broker may be protected up to the limits in each. Two individual accounts in the same name at the same firm, however, are typically combined.
The rules on capacities are detailed, so check SIPC's own explanation if you have a complicated setup.
What SIPC covers, and what it doesn't
| Generally covered | Generally not covered |
|---|---|
| Stocks and bonds | Losses from market declines |
| Shares of mutual funds and ETFs | Bad advice or unsuitable investments |
| Money market fund shares held as securities | Commodity futures contracts |
| Treasury securities | Foreign currency held as an investment |
| Certificates of deposit held as securities | Most crypto assets that are not registered securities |
| Cash held at the broker for buying securities | Fixed annuity contracts and some investment contracts not registered with the SEC |
The key idea is simple: SIPC protects the custody of your assets, not their value. If your shares drop by half, that is a market loss. If your broker fails and your shares disappear from the records, that is what SIPC exists for.
Cash sweeps and FDIC insurance
Many brokers don't leave uninvested cash at the brokerage. Instead, they sweep it into deposit accounts at one or more partner banks. Once cash is in a bank deposit, it is generally eligible for FDIC insurance, which covers up to $250,000 per depositor, per insured bank, per ownership category, rather than SIPC.
Some sweep programs spread cash across several banks, which can raise the total FDIC coverage available. Three things to check:
- Which banks are used. If you already hold deposits at one of the program banks, those balances are combined for FDIC limits.
- When coverage applies. FDIC insurance applies once the money is actually deposited at the bank, not while it is in transit.
- Sweep yields. Sweep accounts may pay less interest than money market funds; our comparison of money market funds, savings and CDs explains the trade-offs.
Money market fund shares are securities, not bank deposits, so if a broker fails they fall under SIPC's securities protection, not FDIC insurance. Neither protects against a fund's value falling.
Excess SIPC coverage
Many larger brokers buy additional private insurance, often called "excess SIPC" coverage, that can kick in after SIPC limits are reached. The terms vary a lot, including aggregate caps across all customers, per-customer limits and what is excluded. If you hold balances well above the SIPC limits at one firm, read your broker's disclosure on excess coverage rather than assuming it matches the headline number.
How to check your protection
- Confirm membership. Search the member database on the SIPC website. A firm's name on a marketing page is not proof.
- Check the regulator. Use FINRA BrokerCheck to confirm the firm's registration and history.
- Read the sweep disclosure. It tells you where your cash goes and which insurance applies.
- Keep your own records. Save statements and trade confirmations. In a liquidation, they help prove what you owned.
- Know your account structure. If you have a large portfolio, how you title accounts can affect how much is covered.
Practical takeaways
SIPC is a backstop for rare broker failures, not a reason to ignore risk. Use it as one item on your checklist when choosing a broker, alongside regulation, segregation, costs and service. For most investors with balances under the limits at a mainstream, regulated firm, the bigger day-to-day risks are investment choices and fees, not custody.
It also helps to know what to expect if a failure does happen. Accounts are often transferred to another brokerage, and there can be a delay before you can trade or withdraw. Keeping up-to-date contact details on file, and copies of recent statements, makes any claim process smoother.
If your balances are large, it may make sense to split assets across account capacities or firms, confirm sweep bank lists and review any excess coverage terms.
This article is for general information and education only and is not financial, investment, tax or legal advice. Consider your own circumstances and consult a licensed professional.
Frequently asked questions
Does SIPC protect me if my stocks lose value?
No. SIPC does not cover market losses, bad investment advice or a decline in the value of your holdings. It steps in only when a member brokerage firm fails and customer cash or securities are missing, and its job is to restore those assets up to the limits.
Is cash in my brokerage account covered by SIPC or the FDIC?
It depends where the cash sits. Cash held at the brokerage itself counts toward SIPC's $250,000 cash limit, while cash swept into deposit accounts at partner banks is typically eligible for FDIC insurance at those banks instead. Your broker's sweep program disclosure explains which applies and which banks are used.
Are crypto assets in a brokerage account protected by SIPC?
Generally not. SIPC protects securities, and most crypto assets are not registered securities, so they usually fall outside SIPC coverage even when held through a firm that is a SIPC member. A spot crypto ETF is different, because shares of a registered exchange-traded fund are securities.
