SIPC vs FDIC: What Actually Protects Your Retirement Account
Most people confuse SIPC and FDIC. Here's what each covers - and what neither protects against.
Key Takeaways
- 1FDIC covers bank deposits (checking, savings, CDs) - NOT investment accounts.
- 2SIPC covers brokerage accounts up to $500,000 if your broker fails.
- 3Your 401k and IRA are protected by SIPC, not FDIC.
- 4Neither SIPC nor FDIC protects against market losses - the biggest actual risk.
- 5If your stocks drop 50%, no insurance reimburses you.
- 6Physical gold provides protection that doesn't depend on either system.
SIPC vs FDIC at a Glance
These two protections are often confused, but they cover completely different things.
| FDIC | SIPC | |
|---|---|---|
| What it protects | Bank deposits | Brokerage accounts |
| Coverage limit | $250,000 per depositor | $500,000 per customer |
| Covers cash | Yes | Yes (up to $250,000) |
| Covers investments | No | Yes |
| Protects against | Bank failure | Broker failure |
| Covers market losses | No | No |
| Applies to 401k/IRA | Only bank-held IRAs | Yes |
What FDIC Actually Covers
FDIC (Federal Deposit Insurance Corporation) protects **bank deposits only**. If your bank fails, FDIC reimburses you up to $250,000 per depositor, per bank.
- Checking accounts: Covered
- Savings accounts: Covered
- CDs (Certificates of Deposit): Covered
- Money market deposit accounts: Covered
- Stocks, bonds, mutual funds: NOT covered
- Investment accounts: NOT covered
- 401k/IRA investments: NOT covered
What SIPC Actually Covers
SIPC (Securities Investor Protection Corporation) protects **brokerage accounts**. If your broker fails and your securities go missing, SIPC covers up to $500,000.
- Stocks: Covered
- Bonds: Covered
- Mutual funds: Covered
- ETFs: Covered
- Cash in brokerage account: Covered (up to $250,000)
- Cryptocurrency: NOT covered
- Market losses: NOT covered
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What Protects Your 401k and IRA
Your 401k and IRA are typically held at brokerages (Fidelity, Vanguard, Schwab, etc.), so they're covered by **SIPC, not FDIC**. Exception: If your IRA holds only bank products (like an IRA CD at a bank), that portion is FDIC insured.
- 401k at Fidelity/Vanguard: SIPC protected
- IRA with investments: SIPC protected
- IRA CD at a bank: FDIC protected
- Target-date funds: SIPC protected
- Market losses in any account: Not protected
The Protection Gap Nobody Talks About
**Neither SIPC nor FDIC protects against market losses.** If your 401k drops from $500,000 to $300,000 in a crash, no insurance reimburses the $200,000 loss. This is the actual risk that destroys retirements - not bank or broker failures.
- 2008 crash: Average 401k lost 31%
- 2022 crash: Average 401k lost 23%
- Insurance payout for these losses: $0
- The gap: No protection for the biggest risk
SIPC and FDIC Protect Against Rare Events
Broker and bank failures are rare. Market crashes happen every 7-10 years on average. Yet we have insurance for the rare event and nothing for the common one. That's the gap smart investors fill with uncorrelated assets.
Gold: Protection That Doesn't Need Insurance
Physical gold in a Gold IRA doesn't need SIPC or FDIC because there's no counterparty. You own the metal directly.
- No counterparty risk - you own physical metal
- Doesn't depend on brokers or banks staying solvent
- Historically rises during market crashes
- Real asset with 5,000 years of value
- Can hold in same tax-advantaged IRA structure
Frequently Asked Questions
1Is my IRA FDIC insured?
Usually no. If your IRA holds investments (stocks, bonds, mutual funds), it's covered by SIPC, not FDIC. Only bank-held IRAs with deposits (like IRA CDs) qualify for FDIC coverage. Check whether your IRA is at a bank or brokerage.
2What if I have more than $500,000 in one brokerage?
SIPC coverage is per customer, not per account. If you have $800,000 at one brokerage, only $500,000 is covered. However, many brokerages carry excess SIPC insurance. You can also spread funds across multiple brokerages for more coverage.
3Why doesn't insurance cover market losses?
Market losses are the nature of investing, not institutional failure. FDIC/SIPC protect against your institution failing - your bank losing your deposit or broker losing your securities. When markets drop, your securities are still there - they're just worth less.
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