It is important to know how protection you have for your hard-earned invested assets. Some investors, however, may not realize how much of their money is at risk.
FDIC and NCUA Insurance Coverage
Many people know that the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000, but what if your assets exceed that? Even if they do not, are you sure that your investments are covered?
First, let us establish what is covered by FDIC insurance. It includes checking and savings accounts, money market accounts and CDs. Therefore, for a couple, this would mean a combined $250,000 in insurance for these depository instruments.
FDIC insurance can be understood easily if you think of coverage by type of account ownership, rather than the type of asset. The four categories of coverage are individual, joint, retirement and trust. The FDIC provides $250,000 in protection for each type of account.
For deposits at credit unions, there is a similar organization to the FDIC, established by the National Credit Union Administration (NCUA). The National Credit Union Share Insurance Fund (NCUSIF) is the federal fund that insures credit union members’ deposits in federally insured credit unions up to $250,000. The U.S. federal government backs NCUSIF, like the FDIC.
Coverage for Securities
Now that we have established what type of depository assets are covered and to what limits, what about those investments that are not covered?
This could include annuities, mutual funds, exchange-traded funds, stocks, bonds, and other types of securities – even those that were purchased at a bank branch.
So, what protection, if any, is there for these types of products? For assets held at a broker-dealer, the Securities Investor Protection Corporation (SIPC) offers protection of up to $500,000, which includes a $250,000 limit for cash.
It is important to note that the SIPC does not cover losses associated with the negative performance of a security. The risk of loss is inherent in investments in the capital markets, and you need to be comfortable with that reality before investing.
What the SIPC does is cover losses associated with the mishandling of assets by a broker-dealer. If a firm loses possession of client assets due to negligence or goes out of business and can’t return their clients’ money, that’s where the SIPC steps in.