FDIC vs. SIPC insurance: Key differences explained
- FDIC vs. SIPC at a glance
- What FDIC insurance covers and excludes
- What SIPC insurance covers and excludes
- FDIC insurance limits and account ownership rules
- SIPC insurance limits and account types
- FDIC vs. SIPC for cash held in brokerage accounts
- How to maximize protection beyond FDIC and SIPC limits
- FDIC vs. SIPC: Which applies to your business?
- Protect every dollar and hour with Ramp
When you manage business finances, knowing how your money is protected matters as much as where you keep it. There are two forms of insurance to safeguard different types of assets: FDIC insurance for bank deposits and SIPC insurance for brokerage accounts.
FDIC insurance covers up to $250,000 per depositor, per insured bank, for each ownership category. SIPC insurance protects up to $500,000 in securities, including a $250,000 limit for uninvested cash, per account held with an SIPC-member brokerage firm.
It's important to understand that neither FDIC nor SIPC shields you from investment losses from market declines; each only applies if the financial institution itself fails.
FDIC vs. SIPC at a glance
FDIC insurance is backed by the full faith and credit of the U.S. government. SIPC insurance is managed by a private nonprofit created by Congress to protect investors when a brokerage firm fails.
| Feature | FDIC insurance | SIPC insurance |
|---|---|---|
| Institution type | Banks and savings associations | Brokerage firms |
| What's covered | Checking, savings, CDs, money market deposit accounts | Stocks, bonds, mutual funds, cash in brokerage accounts |
| Coverage limits | $250,000 per depositor, per bank, per ownership category | $500,000 in total protection per account type, including a $250,000 limit for uninvested cash |
| When protection applies | Bank failure | Brokerage firm failure |
| Market loss protection | No | No |
What FDIC insurance covers and excludes
The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that protects depositors when an FDIC-insured bank or savings association fails. Coverage is automatic when your funds reside in a covered account at an FDIC member bank. You don't need to apply or pay for it.
Checking and savings deposits
Traditional bank accounts receive full FDIC protection. These include business checking and savings accounts, personal checking and savings accounts, cash management accounts, and certificates of deposit.
FDIC insurance covers all deposits at each insured bank, dollar for dollar, including principal and any accrued interest through the date the bank closes, up to the insurance limit.
Money market deposit accounts
Money market deposit accounts also qualify for FDIC coverage, just like checking and savings accounts, which you should inventory alongside other liquid assets.
Don't confuse money market deposit accounts with money market mutual funds. A money market deposit account is a bank product insured up to the FDIC limit if held at an FDIC-insured bank. A money market mutual fund is an investment and has no FDIC protection.
Products FDIC does not cover
FDIC insurance only applies to deposits at insured banks. It doesn't cover investments, even if purchased through a bank. The FDIC specifically excludes:
- Stocks, bonds, and mutual funds
- Annuities
- Life insurance policies
- Municipal securities
- Contents of safe deposit boxes
- U.S. Treasury securities, though backed by the government, still require operational controls within treasury operations
- Crypto assets
What SIPC insurance covers and excludes
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership organization created by Congress in 1970. It protects investors if a brokerage firm fails financially. Most U.S. brokerage firms—more than 3,200—are SIPC members.
Unlike FDIC insurance, SIPC protection is not blanket coverage. It only applies when an SIPC-member broker-dealer fails and can't return your assets.
Stocks, bonds, and mutual funds
SIPC covers registered securities such as stocks, bonds, Treasury securities, certificates of deposit, mutual funds, and money market mutual funds. These assets held in your brokerage account are protected if the firm fails.
Cash in brokerage accounts
Cash left in a brokerage account or held through a money market fund sweep program may qualify for SIPC protection. If an SIPC-member brokerage fails, SIPC replaces missing securities and cash held with that firm. It provides up to $500,000 in total coverage per customer, including a $250,000 limit for cash.
Assets SIPC does not cover
SIPC doesn't protect you from the decline in market value of securities or from bad investment advice. It also excludes:
- Commodity futures contracts, unless held in a special margining account
- Foreign exchange trades
- Investment contracts, such as limited partnerships
- Fixed annuity contracts not registered with the SEC
- Digital or crypto assets, unless registered with the SEC
FDIC insurance limits and account ownership rules
The standard FDIC insurance limit is $250,000 per depositor, per insured bank, for each ownership category. All deposits a person or business holds in the same ownership category at one bank are added together and insured up to this limit. Understanding ownership categories can help you maximize protection.
Single accounts
An individual account in your name only receives up to $250,000 in FDIC coverage. If you hold multiple single accounts at the same bank, such as checking, savings, and CDs, those balances are combined for insurance purposes.
Joint accounts
Joint accounts are insured separately from individual accounts. Suppose you and your spouse share a joint deposit account with $500,000 at an FDIC-insured bank, and each of you also has a single account with $250,000. Each of you would be insured up to $250,000 per account, for a total of $1 million in FDIC coverage at that bank.
Retirement and trust accounts
As of April 1, 2024, the maximum insurance coverage for a trust owner with five or more beneficiaries is $1.25 million per owner for all trust accounts at the same institution. Each owner's trust deposits are insured up to $250,000 multiplied by the number of beneficiaries, up to the $1.25 million cap.
IRAs receive their own $250,000 coverage category, separate from your other accounts at the same bank.
SIPC insurance limits and account types
SIPC protection is based on separate capacity, which refers to how an account is owned. Each separate capacity is protected up to $500,000 total, including a $250,000 limit for cash. Accounts held in the same capacity are combined when calculating SIPC protection limits.
Individual brokerage accounts
A standard taxable brokerage account in your name is insured up to $500,000 under SIPC. If you maintain two brokerage accounts in the same name at the same firm, they are combined for coverage and protected up to a total of $500,000.
Joint brokerage accounts
Joint accounts have their own protection limit. If you and your spouse share a joint brokerage account separate from your individual accounts, that account qualifies for an additional $500,000 of SIPC coverage. This separate capacity means joint accounts do not reduce your individual account limits.
IRA brokerage accounts
Traditional and Roth IRAs are treated as separate accounts. Each receives up to $500,000 of SIPC protection, giving you $1 million in combined coverage for the two accounts at an SIPC-member broker-dealer.
FDIC vs. SIPC for cash held in brokerage accounts
Where your brokerage cash resides determines which type of insurance applies. Many brokerage firms use sweep programs to move uninvested cash between your brokerage account and participating banks.
Choosing between the two depends on your goals: FDIC protection prioritizes safety, while SIPC coverage on money market funds may provide higher yield potential with modest risk. At a high level:
Bank sweep programs (FDIC protection)
- Uninvested cash automatically sweeps into deposit accounts at one or more FDIC-insured banks
- These deposits earn interest at a variable rate, often lower than yields from money market funds
- Each participating bank provides up to $250,000 in FDIC insurance per depositor, per ownership category
- FDIC insurance applies only to cash in bank deposit accounts. When funds move back to the brokerage account, SIPC protection resumes.
Money market fund sweep programs (SIPC protection)
- Cash invested in a money market mutual fund becomes a security rather than a deposit
- The FDIC doesn’t guarantee or insure these funds
- Because they are securities, they qualify for SIPC coverage up to $500,000 total, including $250,000 for cash
- Money market funds may offer higher yields than bank sweep programs, but include limited investment risk
Free credit balances (SIPC protection)
- Cash that remains uninvested in your brokerage account but doesn’t sweep to a bank is considered a free credit balance
- SIPC protects these balances up to $250,000 for cash claims, as part of the total $500,000 limit
- Once the cash sweeps to a bank, FDIC protection replaces SIPC coverage automatically
How to maximize protection beyond FDIC and SIPC limits
High-net-worth individuals and businesses often hold assets above standard FDIC and SIPC limits. These strategies can help expand protection while keeping funds accessible:
| Strategy | How it works | Potential coverage |
|---|---|---|
| Spread funds across multiple institutions | Open accounts at different FDIC-insured banks or SIPC-member brokerage firms to multiply coverage across ownership categories | Up to $250k per depositor, per ownership category, per bank, and $500k per brokerage firm |
| Use sweep networks and brokered deposits | Participate in programs that automatically distribute large cash balances across multiple FDIC-insured banks through a single account | Up to $5M for individual accounts and $10M for joint accounts in combined FDIC coverage |
| Leverage excess SIPC and private insurance | Work with brokerage firms that provide additional insurance beyond SIPC’s $500k limit | Varies by firm; some offer unlimited securities coverage and up to $1.9M for cash |
FDIC vs. SIPC: Which applies to your business?
Both FDIC and SIPC protections matter, but they apply in different contexts. The right coverage depends on how your business manages cash and investments.
Understanding when FDIC vs. SIPC insurance applies ensures every dollar your business holds, whether in cash or securities, is protected against institutional failure.
- Operating cash and savings: Funds in checking, savings, and money market deposit accounts at FDIC-insured banks fall under FDIC insurance. These accounts are best for liquidity, payroll, and day-to-day operating expenses.
- Invested reserves and growth assets: Holdings such as stocks, bonds, and mutual funds in a brokerage account fall under SIPC protection. This applies if your firm uses a brokerage to invest surplus funds or hold retirement assets.
- Mixed banking relationships: Many businesses use both FDIC-insured banks and SIPC-member brokerages. Keeping track of where funds are held and how they’re protected can help you manage risk and optimize coverage limits.
Protect every dollar and hour with Ramp
Safeguarding your business funds goes beyond choosing the right bank or brokerage. You need visibility into every dollar that moves through your company. Ramp gives you real-time visibility into your cash flow through customizable reporting dashboards.
Ramp integrates with your accounting software or ERP to streamline reconciliations, eliminate repetitive data entry, and close your books faster, all while improving accuracy and compliance.
Try an interactive demo to see why more than 45,000 customers have saved over $10 billion and 27.5 million hours with Ramp.
FAQs
If a brokerage firm fails, SIPC first recovers all available customer assets during liquidation. If there’s still a shortfall, SIPC provides up to $500,000 in total protection, including $250,000 for uninvested cash, to replace missing securities or funds.
Neither is inherently better; it depends on your priorities. FDIC-insured bank deposits typically offer lower returns but guaranteed protection, while money market funds in brokerage accounts may offer higher yields with SIPC protection.
Businesses are also eligible to receive FDIC insurance up to $250,000 per account ownership category, per bank. This coverage extends to both principal and accrued interest while the account balance remains within the limits.
Money market insurance does exist, but coverage depends on the type of account. Money market deposit accounts held at FDIC-insured banks are protected up to $250,000. Money market mutual funds at brokerages receive SIPC protection up to $500,000 but aren’t FDIC insured.
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