Your investments are yours, not your broker’s. If your brokerage goes bankrupt, your stocks and funds are transferred to another firm. SIPC insures up to $500,000, and in nearly every case, customers recover 100% of their securities.
SIPC Coverage
| What’s Covered | Limit |
|---|---|
| Securities (stocks, bonds, ETFs, mutual funds) | Up to $500,000 total |
| Cash in brokerage account | Up to $250,000 (within the $500,000 total) |
| Per customer, per brokerage | Each brokerage is separate |
| What’s NOT Covered | Why |
|---|---|
| Market losses | SIPC protects against broker failure, not investment losses |
| Cryptocurrency | Not a security under current law |
| Commodity futures | Separate regulatory framework |
| Fixed annuities | Insurance product, not a security |
| Unregistered investments | Includes some limited partnerships |
How It Works When a Brokerage Fails
| Step | What Happens | Timeline |
|---|---|---|
| 1 | SEC/FINRA identifies the troubled firm | Before failure |
| 2 | SIPC initiates liquidation proceedings | Day 0 |
| 3 | Court appoints a trustee | Days 1-5 |
| 4 | Customer accounts are identified | Days 5-30 |
| 5 | Securities transferred to a healthy brokerage | 1-3 months |
| 6 | Customers get access to their investments | 1-3 months |
| 7 | Any shortfalls covered by SIPC (up to limits) | 3-6 months |
Major Brokerage Excess Coverage
| Brokerage | SIPC Coverage | Excess Coverage |
|---|---|---|
| Fidelity | $500,000 | $1 billion aggregate (Lloyd’s) |
| Charles Schwab | $500,000 | $600 million aggregate |
| Vanguard | $500,000 | Excess SIPC through Lloyd’s |
| TD Ameritrade (Schwab) | $500,000 | Per Schwab policy |
| Interactive Brokers | $500,000 | Up to $30 million per account (Lloyd’s) |
| Robinhood | $500,000 | Standard SIPC only |
| E*TRADE (Morgan Stanley) | $500,000 | Per Morgan Stanley policy |
SIPC vs. FDIC
| Feature | SIPC (Brokerage) | FDIC (Bank) |
|---|---|---|
| Coverage limit | $500,000 | $250,000 |
| Cash limit | $250,000 | Full coverage up to $250K |
| What’s protected | Securities + cash | Deposits only |
| Protects against | Broker failure | Bank failure |
| Does NOT protect against | Market losses | Not applicable |
| Funded by | Member firms | Member banks |
How to Maximize Protection
| Strategy | Details |
|---|---|
| Use SIPC-member brokerages | Verify at sipc.org |
| Spread across multiple brokerages | Each gives separate $500,000 coverage |
| Use individual + joint accounts | Can increase coverage at same brokerage |
| Choose brokerages with excess coverage | Fidelity, Schwab, Interactive Brokers |
| Keep excess cash in a bank | FDIC covers $250K per bank for cash |
| Verify statements regularly | Catch discrepancies early |
Historical Brokerage Failures
| Firm | Year | Customer Assets Recovered |
|---|---|---|
| MF Global | 2011 | 100% (eventually) |
| Lehman Brothers (broker-dealer) | 2008 | 100% of securities |
| Bear Stearns | 2008 | Acquired by JPMorgan; customers made whole |
| Madoff Securities | 2008 | ~$14.7 billion recovered of $17.5 billion in losses (SIPC trustee) |
The Bottom Line
Your investments at a major brokerage are well-protected. Securities are held separately from the broker’s own assets, SIPC covers up to $500,000, and most major firms carry additional excess insurance. The biggest risk isn’t your broker going bankrupt — it’s market losses, which no insurance covers. Focus on diversification, not broker risk. For extra protection, spread large portfolios across multiple SIPC-member firms.
Related: What Happens If a Stock Goes to Zero? | What Happens If You Sell a Stock at a Loss?