April 2023
Financial Planning

Why FDIC and SIPC Insurance Matters

By: Corrina Olson

Since Silicon Valley Bank (SVB) hit headlines last month, you have probably seen a lot about both FDIC and SIPC insurance. What are the differences between them? And what do they protect? Federal Deposit Insurance Corporation (FDIC) insurance and Securities Investor Protection Corporation (SIPC) offer two different types of coverage that help protect your assets. FDIC insurance and SIPC coverage protect bank and brokerage firm customers, respectively, against the risk of failing financial institutions. It’s important to note that they do not protect customers against market losses. Individual assets may be covered under either SIPC or FDIC, but not both. These types of insurance operate very differently. Let's take a look at how they protect you.

What is FDIC insurance?

The Federal Deposit Insurance Corporation (FDIC) is a federal agency that protects customers against the loss of deposit accounts (such as checking and savings) in FDIC-insured banks. Here are some important facts to know about FDIC insurance:

• The basic FDIC insurance limit is currently $250,000 per account holder per insured bank for deposit accounts and $250,000 for certain retirement accounts deposited at an insured bank. These insurance limits include both principal and accrued interest.

• The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, municipal securities, or money market funds, even if these investments were bought from an insured bank.

It's always wise to put your money in an FDIC-insured bank. Whether it's your emergency fund or short-term cash, there's no need to take unnecessary risks.

How is FDIC insurance coverage determined?

The FDIC insurance limit applies to each account holder at each bank. Here is how the FDIC defines coverage for different account holders by some common ownership types:

• Single accounts are deposit accounts (e.g., checking, savings) owned by one person. FDIC insurance covers up to $250,000 per owner for all single accounts at each bank.

• Joint accounts are deposit accounts owned by two or more people. FDIC insurance covers up to $250,000 per owner for all joint accounts at each bank.

• Certain retirement accounts, such as IRAs and self-directed defined contribution plans, are covered by FDIC insurance up to $250,000 for all deposits in such retirement accounts at each bank.

What is SIPC insurance?

The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that was created by federal statute in 1970. Unlike the FDIC, SIPC does not provide blanket coverage. Instead, SIPC protects customers of SIPC-member broker-

dealers if the firm fails financially. Coverage is up to $500,000 per customer for all accounts at the same institution, including a maximum of $250,000 for cash. SIPC does not protect investors if the value of their investments falls. When you think about it, this makes sense. After all, market losses are a normal part of the risk of investing.

Why FDIC and SIPC Insurance Matters

You can do everything right in terms of budgeting and making wise investment choices, but it won't mean much if your financial institution doesn't do their part. Banking with FDIC-insured banks and working with SIPC-insured brokerage firms is a simple way to protect your wealth. It’s important to know the difference between the SIPC and FDIC insurance protection plans. Both cover different elements of your financial life: as discussed above, the SIPC covers certain kinds of securities and investments, while FDIC coverage sticks to deposit accounts. Both can help you recoup losses if your banking partner fails, helping you build peace of mind that you can access the money you may have with a now-insolvent financial institution.

Check out https://edie.fdic.gov/fdic_info.html for more information. If you want to know more about how SIPC and FDIC insurance works, consider giving us a call and speaking to your financial advisor. We will be able to go over your specific accounts and the pros and cons, as well as best practices for maximizing your protection. You’ll walk away with a stronger sense of how your assets are protected in the event of unforeseen circumstances.

If you have questions, please contact us.

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