When investing, it’s crucial to understand the different types of insurance available to protect your investments. In the United States, there are three primary insurances safeguarding investors: FDIC insurance, SIPC insurance, and NCUA insurance.

Let’s delve into how they operate and the differences among them.

What is FDIC Insurance?

The Federal Deposit Insurance Corporation (FDIC) is a U.S. government-established agency designed to maintain stability and public confidence in the nation’s banking system. FDIC insurance offers protection against loss of funds if a bank fails or shuts down.

Your deposits at FDIC-insured banks (such as checking or savings accounts, Certificates of Deposit (CDs), or money market accounts) are covered up to the legal maximum limit.

The standard insurance limit is $250,000 per depositor, per insured bank, for each account ownership category (individual accounts, joint accounts, retirement accounts, etc.).

What is SIPC Insurance?

The Securities Investor Protection Corporation (SIPC) provides protection for clients when a brokerage firm fails (a rare occurrence). In such cases, SIPC protects the securities and cash in brokerage accounts, offering up to $500,000 in coverage.

This amount includes cash used for purchasing securities, with a limit of $250,000. The government does not fund SIPC insurance; its funds come from fees paid by SIPC-registered brokerage firms.

However, it only covers the custodial aspects of your brokerage account, meaning it helps return your securities and cash if your brokerage firm goes under.

Moreover, SIPC does not protect you if your investments lose value. If you sell a stock at a loss or suffer from poor investment advice or inappropriate recommendations from a broker, SIPC will not assist.

It’s important to understand that SIPC protection is different from keeping your cash in a bank insured by the Federal Deposit Insurance Corporation (FDIC). SIPC does not insure the actual value of any securities you own; it focuses on returning the funds already present in your account in the event of a brokerage firm’s liquidation. While it provides some protection, it has its limitations, and understanding these is crucial for making informed investment decisions.

What is NCUA Insurance?

The National Credit Union Administration (NCUA) provides insurance for deposits at U.S. credit unions. Similar to bank’s FDIC, NCUA is a federal agency responsible for regulating and supervising credit unions to ensure their safety and soundness.

NCUA insurance protects members’ deposits in credit unions against losses due to the credit union’s failure or closure. When you hold funds in a federally insured credit union (such as regular share accounts, share draft (checking) accounts, or share certificates (CDs)), your deposits are covered up to the legal maximum limit.

The standard insurance amount under NCUA is $250,000 per depositor, per insured credit union, for each account ownership category.

Notably, NCUA insurance applies only to credit unions, whereas FDIC insurance covers bank deposits.

FDIC, SIPC, and NCUA: Key Differences

FDIC, SIPC, and NCUA are three distinct U.S. government agencies providing insurance protection for different types of financial institutions. Here are the main differences between FDIC, SIPC, and NCUA:

• Protection Offered:
  • FDIC insures deposits at FDIC-insured banks up to $250,000.
  • SIPC protects securities in SIPC-registered brokerage firms up to $500,000peraccount,includingacashlimitof$250,000.
  • NCUA insures deposits at NCUA-insured credit unions up to $250,000.
• Coverage Scope:
  • FDIC covers all depositors at FDIC-insured banks, regardless of citizenship or residency.
  • SIPC covers all clients of SIPC-registered brokerage firms, regardless of citizenship or residency.
  • NCUA covers all depositors at NCUA-insured credit unions, regardless of citizenship or residency.
• Support:
  • FDIC insurance is backed by the full faith and credit of the U.S. government. In the event of a bank failure, FDIC uses taxpayer money to compensate depositors up to $250,000.
  • SIPC insurance is not government-funded. Its funds come from fees paid by SIPC-registered brokerage firms. SIPC attempts to recover clients’ securities in the event of bankruptcy, up to a $500,000 limit. However, SIPC does not guarantee full compensation for all clients.
  • NCUA insurance is fully guaranteed by the U.S. government. If an NCUA-insured credit union fails, NCUA uses taxpayer money to compensate depositors up to $250,000.