If your brokerage failed tomorrow, is your money actually covered? Here's how SIPC protection really works

The number most investors can recite for their bank is $250,000 — FDIC insurance. Far fewer know the equivalent number for their brokerage account, or that it works on different rules entirely. If your brokerage firm failed tomorrow, the Securities Investor Protection Corporation (SIPC) is what would step in — and it protects something narrower than most people assume.

Here's what SIPC actually covers, what it explicitly doesn't, and the one rule that can multiply your effective coverage without you doing anything unusual.

What SIPC is

SIPC is a nonprofit membership corporation created by the Securities Investor Protection Act of 1970 — not a federal government agency, though it operates under federal law and works alongside the SEC. Virtually every broker-dealer registered to do business in the U.S. is required to be a SIPC member. When a member firm fails, SIPC steps in to work toward restoring customers' securities and cash held in their accounts.

The core number: $500,000, with a $250,000 cash sub-limit

Per SIPC's own description, protection tops out at $500,000 per customer, and within that total, cash is capped at $250,000. So a customer holding $500,000 entirely in securities is fully covered; a customer holding $500,000 entirely in cash is only covered up to $250,000 of it. Investor.gov (the SEC's own investor-education site) independently confirms the same figures.

What actually counts as "covered"

SIPC protects securities — stocks, bonds, mutual funds, and similar registered instruments — and cash held for the purpose of buying securities, when they're in an account at a SIPC-member firm. Critically, SIPC explicitly does not cover:

• A decline in the market value of your securities (this is the one people most often assume, wrongly)
• Losses from bad investment advice
• Commodity futures contracts, except in limited special-portfolio-margining accounts
• Foreign exchange (forex) trades
• Investment contracts not registered with the SEC
• Crypto assets and stablecoins that aren't registered securities
• Fixed annuity contracts not registered with the SEC

In other words, SIPC is a custody backstop for when a firm itself fails — not an insurance policy against the market going down, and not a rescue plan for unregistered or speculative products a firm may have sold you.

The rule that can multiply your coverage: "separate customer capacity"

This is the part of SIPC coverage most worth understanding, because it's genuinely useful and not widely known. Per SIPC's own guidance, coverage applies per separate customer capacity — meaning accounts held in different legal categories each get their own $500,000/$250,000-cash limit.

Categories SIPC recognizes as separate include individual accounts, joint accounts, corporate accounts, trust accounts, IRAs, Roth IRAs, executor (estate) accounts, and guardian (minor) accounts. Two concrete examples from SIPC's own materials:

• An individual account and a joint account at the same firm are two separate capacities — $500,000 of protection for each, not shared.
• An IRA and a Roth IRA are also two separate capacities — $500,000 of protection for each.

The flip side: two accounts in the same capacity don't multiply coverage. Two individual accounts at the same firm, both titled to you alone, share one combined $500,000 limit — not $500,000 each. The distinction is the legal capacity the account is held in, not simply how many account numbers you have.

Margin accounts: coverage is based on "net equity," not the account's face value

If you trade on margin — borrowing from your broker against your holdings — SIPC coverage is measured by your account's net equity. The governing statute, the Securities Investor Protection Act (codified at 15 U.S.C. § 78lll(11)), defines net equity as what the firm would owe you if it liquidated your positions on the filing date, minus any amount you owe the firm. In practice: if you carry an outstanding margin loan, that balance is subtracted before SIPC's protection is calculated — so the $500,000 figure applies to your net equity, not your account's gross securities value. This is a meaningfully different calculation than a cash account, and if margin trading is a significant part of how you invest, it's worth understanding your own firm's specific disclosures on this point.

Filing a claim, and the one thing you have to do fast

If a SIPC-member firm fails, SIPC's process works to transfer or restore customer securities and cash. One narrower but important point: if you ever spot an unauthorized transaction in your account, both SIPC and investor.gov are explicit that you should report it in writing to your broker as soon as you notice it — delay can complicate a claim.

And a limit worth noting on the other side: SIPC protection only applies if your assets were actually placed with a SIPC-member firm. Assets held with a non-member firm — a category that can include certain crypto platforms, some unregistered investment schemes, and firms operating outside SEC/FINRA oversight — get none of this protection, regardless of how the platform describes itself.

How this differs from FDIC insurance

If you've read how FDIC deposit insurance actually works, the shape of this rule will look familiar — a fixed dollar limit, a "separate categories multiply coverage" mechanic, and a set of products the insurance doesn't reach. But the two schemes aren't interchangeable, and it matters which one applies to a given dollar. Cash sitting in a brokerage account's sweep program, for instance, might land under FDIC coverage or SIPC coverage depending on how the sweep is structured — we've covered that distinction separately. The short version: FDIC insures bank deposits; SIPC protects brokerage custody of securities and cash awaiting investment. Neither one insures against your investments simply losing value.

What this isn't

This is a plain-English summary of how SIPC protection works today, not financial advice and not a guarantee about any specific brokerage firm, account, or asset. Real accounts have edge cases — multi-beneficiary trusts, business accounts, and margin positions among them — that this piece doesn't fully resolve. SIPC's own materials, and your broker's account agreement, are the direct sources to confirm exactly what applies to your specific accounts.