Brokerage Account Protections
While you probably feel good about your understanding of FDIC insurance for your bank deposits, you probably don’t have as good a feeling for money and securities held by your broker.
The Financial Industry Regulatory Authority (FINRA) put together a nice description of what happens when a brokerage house goes down and what protections are in place. Here are some highlights.
First, since the broker is holding securities for you, they should still be there even if the broker goes bankrupt. However, SIPC insurance provides up to $500K in protection for securities that “go missing” and this includes up to $100K of cash the broker may be holding.
Second, unlike FDIC insurance which can return your money within days, a brokerage liquidation can take months so be sure to have enough cash outside a brokerage to survive if that were to happen.