SIPC Protection

The Securities Investor Protection Corporation was created by Congress in 1970 and is funded by its member brokerages rather than by the government. If a member firm fails and customer property is missing, SIPC works to return what belonged to customers, up to $500,000 per customer, of which up to $250,000 may be for cash held in the account.

The limit applies to missing property, not to market losses, and that distinction is the whole point of the program. A stock that falls to a tenth of what was paid for it is not a SIPC claim, because nothing has gone missing: the shares are still there and are still the customer's. SIPC says so in its own materials, and is careful to describe itself as something other than the securities equivalent of deposit insurance.

FDIC is the bank version and is a separate program with a separate backer. It insures deposits at insured banks, up to $250,000 per depositor, per bank, per ownership category, and it is backed by the US government. Cash swept from a brokerage into a partner bank may fall under one, the other, or a combination, and each firm sets out which in its own account documents.