Understanding How Your Accounts Are Protected

As we head into a new month, we hope we can leave behind the March 2023 news concerning the banking sector and “spring” into calmer times. That being said, we’ve been fielding questions in regard to the protections banks, credit unions, and brokerage firms offer, so we want to share information and distinctions between the various organizations to facilitate a better understanding of each. 

Three main organizations have been set up to protect consumers’ financial assets:

• The Federal Deposit Insurance Corp – This is the organization with which people are most familiar. It covers bank deposits (checking accounts, savings accounts, CDs, and other official bank-issued items).
• The NCUA (National Credit Union Administration) – This institution protects credit union deposits.
• The SIPC – This organization protects investments and brokerage accounts.

FDIC (Federal Deposit Insurance Organization):

The Federal Deposit Insurance Corp (FDIC https://fdic.gov ) – is an independent agency the U.S. government established after the Great Depression to restore trust in the banking system. It protects up to $250,000 per depositor, per insured bank, for each account ownership category. The FDIC provides separate coverage for funds depositors may have in different ownership categories, which means a customer may qualify for more than $250,000 in insurance coverage if certain requirements are met. The most common account ownership types are:

• Single Accounts – All single accounts an individual owns at the same bank are totaled and insured up to $250,000.
• Certain Retirement Accounts – Accounts in this category an individual owns at the same bank are totaled and insured up to $250,000.
• Joint Accounts – Each co-owner’s shares of every joint account they own at the same insured bank are added together, and the total is insured up to $250,000.
• Revocable Trust Accounts (including payable on death accounts) – If these accounts have five or fewer beneficiaries, the owner’s deposits are insured up to $250,000 for each unique beneficiary; if they have more than five, the owner’s maximum insurance coverage is up to $1,500,000.
• Irrevocable Trust Accounts – A beneficiary’s interests in all deposit accounts under an irrevocable trust established by the same settlor and held at the same insured bank are added together and insured up to $250,000, if certain requirements are met.

NCUA (National Credit Union Administration):

Credit unions are nonprofit financial institutions and are an alternative to commercial banks. These accounts aren’t FDIC insured, but they have their own form of federally-backed deposit coverage through the National Credit Union (https://ncua.gov/)  Share Insurance Fund. Each credit union member has at least $250,000 in total coverage. Additionally, a member’s interest in all joint accounts combined is insured up to $250,000. The Share Insurance Fund also separately protects members’ IRA and KEOGH retirement accounts up to $250,000 and provides additional coverage for members’ trust accounts.

SIPC (Securities Investor Protection Corp.):

The Securities Investor Protection Corporation (SIPC https://www.sipc.org/for-investors/what-sipc-protects ) is a non-profit corporation that provides insurance to protect brokerage account assets up to $500,000 in total value, of which $250,000 can be cash. Covered assets include stocks, bonds, mutual funds, money market funds, treasury securities, and broker-issued CDs. SIPC insurance doesn’t offer protection if investment value changes.

In addition, protections are available at the three custodians Bluerock utilizes: Fidelity, TD Ameritrade, and Charles Schwab.

Fidelity:

In addition to SIPC protection, Fidelity  (https://www.fidelity.com/why-fidelity/safeguarding-your-accounts)  provides its brokerage customers with additional “excess of SIPC” coverage through Lloyd’s of London. The excess coverage would only be used if SIPC coverage was exhausted. Like SIPC, excess protection does not cover investment losses in customer accounts, including losses due to market fluctuation. Total aggregate excess of SIPC coverage available through Fidelity’s excess of SIPC policy is $1 billion. Fidelity’s excess of SIPC coverage has no per customer dollar limit on securities coverage, but it does have a per customer limit of $1.9 million on coverage of cash awaiting investment.

TD Ameritrade:

TD Ameritrade (https://www.tdameritrade.com/account-protection.html) has purchased excess SIPC coverage from London insurers. This insurance provides each client with 149 million dollars’ worth of protection for securities and two million dollars’ worth of protection for cash over and above the standard SIPC protection. In the event of insolvency, a client may receive amounts due from the trustee in bankruptcy and then SIPC. Excess SIPC is paid out after the trustee and SIPC payouts, and each client is limited to a combined return of 152 million dollars from a trustee, SIPC, and excess SIPC coverage. The TD Ameritrade excess SIPC coverage has an aggregate limit of 500 million dollars over all clients.

* Currently, TD Ameritrade is a broker dealer and a wholly-owned subsidiary of Charles Schwab. The integration of TD Ameritrade into Schwab is scheduled to be completed by the end of 2023.*

Charles Schwab:

Schwab purchases excess SIPC protection from Lloyd’s of London and other London insurers (https://www.schwab.com/legal/account-protection ). This coverage is provided up to an aggregate of 600 million dollars, limited to a combined amount of 150 million dollars to any customer from SIPC and Lloyd’s of London, including up to $1,150,000 in cash.

This information should give comfort to those with cash sitting in FDIC-insured banks, in credit unions, and to those with assets deposited at one of the firms mentioned. Know that safeguards are in place to provide protection.

As always, your Bluerock team is here to answer any questions.