FDIC vs. SIPC Explained: What Happens If Your Bank or Brokerage Collapses
You work hard for your money — and whether it’s sitting in a bank account or invested in the markets, you want to know it’s protected.
Two key safety nets are often mentioned: FDIC and SIPC. But they’re not interchangeable — they cover different types of accounts, work in different ways, and have different processes for returning your money when institutions fail.
Let’s break it down in plain English — including how and when you get paid if disaster strikes.
🏦 What is FDIC?
FDIC stands for the Federal Deposit Insurance Corporation. It’s a U.S. government agency that insures bank deposits in case an FDIC-insured bank goes under.
✅ FDIC Covers:
Checking accounts
Savings accounts
Money Market Deposit Accounts (MMDAs)
Certificates of Deposit (CDs)
🚫 FDIC Does Not Cover:
Stocks, bonds, mutual funds
Crypto
Treasury securities
Anything held at a brokerage
💡 FDIC Coverage Limits:
$250,000 per depositor, per insured bank, per ownership category
🏦 Each account category (like individual, joint, IRA) gets its own $250,000 limit.
💸 How FDIC Pays You if a Bank Fails
If your bank fails, the FDIC usually acts fast — often within 1 to 3 business days after the bank closes.
🏁 FDIC Payment Process:
Bank is closed by a regulator (usually on a Friday).
FDIC takes over as receiver and looks at deposit records.
Within days:
You’re either moved to another bank, or
You receive a direct payment (check or ACH transfer).
🏦 You’ll Get:
Up to $250,000 per ownership category per bank.
Anything over the limit? You become a creditor in the bank’s liquidation — and may recover more later (but it’s not guaranteed).
📌 FDIC Example:
You had:
$200,000 in savings
$100,000 in a CD
At a single bank = $300,000 total
FDIC pays $250,000, and the extra $50,000 is considered uninsured. You may recover some later from the bank’s assets — but it could take months or years.
💼 What is SIPC?
SIPC stands for the Securities Investor Protection Corporation. It protects customers if their brokerage firm fails — but not from investment losses due to the market.
It’s about getting back your cash and investments held in your brokerage account, based on a snapshot of your account at the time of failure.
✅ SIPC Covers:
Stocks, bonds, mutual funds
U.S. Treasuries
Cash held for investment
🚫 SIPC Does Not Cover:
Market losses
Bad investment advice
Most crypto or commodities
💡 SIPC Coverage Limits:
Up to $500,000 per customer, including up to $250,000 for cash
📦 What Does “Returning Your Assets” Mean in SIPC?
When a brokerage fails, SIPC works with a court-appointed trustee to recover and return your assets as they existed on the “date of liquidation” — the day the firm officially failed.
You get:
The same securities, if they’re still available
Or equivalent cash, if they’re missing or misused
This doesn’t mean you get your original investment value — just what you owned at the time of the firm’s collapse.
💸 How SIPC Pays You if a Brokerage Fails
Unlike FDIC, SIPC doesn’t send out instant checks — the process takes weeks to months, depending on how complex the failure is.
🏁 SIPC Payment Process:
Brokerage firm fails, and a court appoints a trustee.
The trustee takes a snapshot of all customer accounts on the liquidation date.
SIPC and the trustee work to:
Recover any assets from third parties
Recreate accurate account records
You file a claim form (usually within 60 days).
SIPC and the trustee return your securities or cash, up to coverage limits.
📬 Many customers receive their full assets back — especially if the records are clean and assets weren't misused.
📌 SIPC Example:
You had:
$450,000 in mutual funds
$50,000 in cash
Your brokerage firm collapses. SIPC steps in:
If the mutual funds are safe, they’re transferred to another broker.
If not, SIPC reimburses you — up to $500,000 total.
🔹 CDs and Treasuries in Brokerages: Who Covers What?
🏦 CDs Bought Through a Broker:
FDIC-insured, if issued by an FDIC member bank
SIPC steps in only if the broker fails, to help return the CD to you
If the bank fails, FDIC covers it — even though it was bought through a brokerage
✅ CDs are backed by FDIC, not SIPC — but SIPC helps you retrieve them if the broker disappears.
💵 Treasuries in Brokerages:
Not FDIC-insured — they’re backed directly by the U.S. government
SIPC helps if your brokerage goes under and your Treasuries need to be recovered
Treasuries themselves are considered among the safest assets in the world
📌 Even if your broker fails, your U.S. Treasury is still valid — SIPC just helps you get it back.
🔍 FDIC vs. SIPC: Full Comparison
FDIC Protection:
Covers bank deposits (checking, savings, CDs)
Insures up to $250,000 per depositor, per bank, per ownership category
Pays out quickly, usually within days after a bank failure
Does not cover investments, market losses, or brokerage accounts
FDIC insurance is backed by the U.S. government
SIPC Protection:
Covers brokerage accounts (stocks, bonds, mutual funds, cash held for investment)
Insures up to $500,000 per customer, including $250,000 for cash
Protects against brokerage failure, but not against market losses or bad investment advice
Payout process takes weeks or months, based on assets at the time of failure
SIPC is a congressionally created nonprofit, not directly government-funded
🧠 Real-World Reminder: The Bernie Madoff Case
One of the most infamous financial frauds in history — the Bernie Madoff Ponzi scheme — involved a firm that was a SIPC member.
When Madoff's brokerage collapsed in 2008, SIPC stepped in, but with important limitations:
Investors were not reimbursed for fake profits shown on falsified account statements.
SIPC only covered net equity — the actual cash invested, minus withdrawals.
Coverage was limited to $500,000 per customer, including up to $250,000 in cash.
A court-appointed trustee worked for years to recover stolen funds, and many investors received partial or full restitution — but it was a long, complicated process.
⚠️ Lesson: Always invest through a legitimate, SIPC-member brokerage or custodian, and be cautious of “too good to be true” returns. SIPC can help when a firm fails — but it can’t protect you from fraud or deception.
To check if a brokerage is SIPC-insured, visit: www.sipc.org
🧠 Final Thoughts: Know Who Has Your Back
FDIC is your protection at traditional banks — fast, government-backed, and reliable.
SIPC helps you get your investments back if your broker fails — but you’ll need to file a claim, and it may take time.
Neither guarantees profit — but both offer critical protection against institutional failure.
💬 Bottom Line
When things go wrong:
FDIC makes you whole on your bank deposits, typically within days
SIPC helps recover your investments and brokerage cash, based on your account snapshot at failure, but the process is longer
And if you own CDs or Treasuries through a broker?
You’re covered — but it depends who fails:
If the bank fails → FDIC has you covered
If the broker fails → SIPC helps recover your assets
Understanding how your money is protected isn’t just smart — it’s the first step toward building a more secure financial future.
“Trust, but verify.”
— Ronald Reagan
📄 Disclosure Statement
This article is for informational purposes only and does not constitute financial, legal, or investment advice. The content is not an offer or solicitation to buy or sell any security or product.
Information about FDIC and SIPC coverage is subject to change. Investors should verify details with the respective organizations and consult a qualified financial professional for advice tailored to their situation.
SIPC and FDIC provide different protections: SIPC does not insure against market losses or guarantee the value of investments, and FDIC insurance applies only to deposits at insured banks. We are not affiliated with or endorsed by FDIC, SIPC, or any government agency.