Understanding FDIC and SIPC

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What is the difference between SIPC and FDIC?

Understanding FDIC and SIPC

The difference between money market deposit accounts and money market funds are many, but one of the most important differences to understand is the protection you have against the bankruptcy of your bank or investment firm, depending on the type of money market you have.

Money market accounts at certain banks are Federal Deposit Insurance Corporation (FDIC) insured up to $100,000 (temporary insurance measures have increased this to $250,000 until 2013). That means that if the bank with which you have a money market deposit account goes bankrupt, the federal government will reimburse you.

The Securities Investor Protection Corporation (SIPC) is not a federal program, but is a member-funded program that protects investors up to $500,000 if their brokerage firm goes bankrupt and loses their assets. It's important to understand that a brokerage firm doesn't always actually hold your physical assets but just reports on them, so often this coverage is unneeded. For instance, if you have a mutual or money market fund, you can probably still contact the fund family and link the information to a new brokerage account--which means you haven't actually lost anything. A money market fund would be covered by SIPC if your brokerage firm actually did somehow lose the fund value through bankruptcy or insolvency.



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