People will frequently ask me about Securities Investor Protection Corporation (SIPC) coverage. Most people have the vague notion that it is like FDIC coverage for brokerage accounts. That description is not too far off, but there are big differences between the two.
First, SIPC is not a federal government agency. SIPC is funded by the member brokerage firms. Second, SIPC does not offer the same blanket protection that the FDIC offers.
It is extremely important to note that SIPC does not provide protection against market declines. Instead, SIPC replaces missing stocks and other securities. Basically, SIPC helps people whose money, stocks, or other securities are either stolen by a broker or put at risk when a brokerage house fails for other reasons. Investments that are not covered by SIPC insurance includes such things as commodity futures contracts, fixed annuity contracts and currency.
Like FDIC insurance, SIPC is also subject to coverage limits. Currently, SIPC coverage is available up to $500,000 per customer including $100,000 in cash. If your accounts exceed those limits, don't be too concerned -- most brokerage houses carry supplemental private insurance as well.
Visit the SIPC website for more details.