SIE Ready✨ The big ideas of the SIE · Lesson 6 of 8 · 60 sec
SIPC vs FDIC
Your stock falls 40%. Does SIPC pay you back? No, and knowing why is worth points.
💡 Key idea
SIPC replaces missing assets when a brokerage fails (up to $500,000, $250,000 cash); it never covers market losses. FDIC insures bank deposits up to $250,000.
🧠 Why it matters
FDIC insures deposits at banks: checking, savings, CDs, up to $250,000 per depositor, per insured bank, per ownership category. SIPC protects customers of a failed member broker-dealer: if cash and securities are missing, SIPC helps return them up to $500,000 per customer, of which up to $250,000 may be cash. Neither one covers investment losses. Stocks, bonds, mutual funds and annuities are not FDIC insured, even when bought at a bank.
📈 In the real world
Dev's broker-dealer goes bankrupt, and $60,000 of his securities cannot be found. SIPC steps in to restore them. The year before, those same holdings had lost $20,000 in a market drop; nobody covers that.
📌 Takeaways
- SIPC: up to $500,000 per customer, including $250,000 cash, when a member firm fails
- FDIC: deposits up to $250,000 per depositor, per bank, per ownership category
- Neither covers a drop in market value
📖 Terms in this lesson
S FOR SECURITIES, D FOR DEPOSITS: SIPC protects Securities customers when a brokerage fails; FDIC protects Deposits when a bank fails; neither covers market losses.
✅ Test yourself
What is the maximum SIPC protection for one customer's cash and securities at a failed member firm?
- Unlimited for securities, $250,000 cash
- $250,000 total
- $1,000,000, including $500,000 cash
- $500,000, including up to $250,000 cash
Answer: D · $500,000, including up to $250,000 cash
SIPC protects up to $500,000 per customer, and no more than $250,000 of that may be cash. $250,000 total is the FDIC deposit figure, and there is no $1 million or unlimited SIPC limit.
Which loss would SIPC cover?
- A stock falling after bad earnings
- Securities missing when a member firm fails
- A bond defaulting in an account
- A bank CD over the FDIC limit
Answer: B · Securities missing when a member firm fails
SIPC restores customer assets missing when a member broker-dealer fails. It never covers market declines or issuer defaults, and bank CDs fall under FDIC, not SIPC.
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