Bank and brokerage accounts are insured for limited amounts. Bank accounts are insured by the FDIC and credit union accounts by NCUAIF; brokerage accounts by SPIC. Here is some information about the limits. Use the following as a guide, but check with the bank or broker before doing anything.
FDIC
(Federal Deposit and Insurance Corporation) insurance is up to $250,000 per account holder in a financial institution. If there are joint owners, then the account is insured up to $500,000 ($250,000 for each owner). The FDIC is a U.S. government agency so, in effect, these accounts are federally insured. If an account is in an individual name, individual name in trust for, a joint account, a revocable trust account or a retirement account, then they considered separate accounts and each one is insured up to the $250,000 limit per account owner. The insurance protects against bankruptcy of the bank or savings institution. Further information can be obtained from www.FDIC.gov. Individual accounts that are payable on death (POD) or in trust for (ITF) to a named beneficiary and are indicated as such on the bank’s records are considered as a revocable trust account and each separately named beneficiary’s account will be insured up to the $250,000 limit. This applies for up to five named beneficiaries. To verify how this works go to the FDIC site and search for requirements for revocable trust accounts. Some accounts with banks might not be FDIC insured such as money market cash accounts. You need to verify the insurance coverage for any accounts other than typical bank accounts.
Credit Union Accounts
Have insurance similar to FDIC with NCUAIF (National Credit Union Administration Insurance Fund) and additional info is at www.NCUA.gov.
SIPC
(Securities Investor Protection Corporation)is a U.S. government creation but not an agency of the U.S. and insures all brokerage accounts up to $500,000, but only up to $250,000 for cash in such accounts that are intended to be used for securities transactions. Cash in brokerage accounts only for the purpose of earning interest are not protected. While SIPC has been established by Congress, it is funded by all of its member broker/dealers. In some cases it also protects against unauthorized trading or theft in the account. Market losses, promises of investment performance and commodities or futures contracts are not covered. Coverage is provided by firms that are members of SIPC. More thorough information can be obtained at www.SIPC.org. Insurance coverage is to be provided to all account holders, and is not restricted to citizens or residents of the United States. The definitions for SIPC protection are not as broad as for FDIC insured accounts. Generally only one account per owner at each SIPC member is insured. Joint accounts are insured for $500,000 regardless of the number of co-account owners. However, joint accounts with different co-owners each will count as a separate account for SIPC protection. Accounts payable on death do not count as separate accounts. Trustee accounts will be treated separately with the same trustee if the underlying beneficiaries are different, but it is suggested that you review the SIPC rules governing this. All FAQs about joint accounts can be found at https://www.sipc.org/for-investors/investor-faqs.
Issues regarding insurance coverage can have very serious consequences if there is a bankruptcy of the bank or brokerage firm so it is strongly suggested you become thoroughly familiar with the rules as it applies to your situation before exposing your funds to unnecessary risk. Start with the links provided above and then inquire further with the institution that will hold your funds.
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