If FDIC Is For Bank Accounts, Then Who Covers My Brokerage Account?

The answer is SIPC (often pronounced Sip-Ick). The Securities Investors Protection Corporation (abbreviated SIPC) is the brokerage industry version of FDIC.

Sort of. Not really.

While SIPC actually protects certain college and other investment accounts up to $500,000 per individual (five times the basic limit of FDIC), it's not actually a government-backed organization. It's actually an industry association made up of member firms who choose to participate.

In other words, SIPC insurance coverage is only as good as the association's pockets are deep. If there is no money in the SIPC war chest, there is theoretically no money available to bail out investors whose brokerage firms go belly up.

In all fairness, SIPC has always been able to bail out the accounts of firms that have gotten into trouble. But then again, only a few seem to get into trouble at a time.

As with FDIC, accounts protected under SIPC are not guaranteed against bad investment choices or even against fraud. They're only insured against the failure of the institution and how that might spill over to your account.

For a more detailed explanation and a link to find out if your brokerage firm is covered, take a look at this recent write-up on SIPC insurance coverage.

To get more important pieces of "need to know" information, be sure to sign up for my weekly College Savings newsletter.