You might wonder if your monetary investments are insured if something happens. There are some ways to protect your investments in case anything happens to your broker or other circumstances.
As a general rule of thumb, as long as you open an account in an FDIC-insured (Federal Deposit Insurance Corporation), you are protected up to $250,000 per person, per ownership category (trust, checking, etc.), and per banking institution. This means that you can open multiple accounts in the same bank under different categories like a trust and checking accounts. However, the same ownership category accounts are combined to only protect $250,000 maximum. If you open accounts in multiple banks, your assets will still be protected as only one category at one bank is protected up to $250,000. Using a FDIC-insured bank is important as it can cover some or all money lost in case your bank fails or loses your money.
Now, securities are slightly trickier. SIPC (Securities Investor Protection Corporation) insures securities like stocks, bonds, etc. However, if your asset’s value declines, it is not SIPC protected. It protects you from being heavily and negatively affected by a brokerage firm failing. There is a limit of $500,000 per person, including a cash limit of $250,000. SIPC will most commonly cover investors when assets from client accounts have gone missing, or when a member firm fails and starts liquidation. The goal of SIPC is to restore missing or lost assets to clients. However, some securities may not be protected under SIPC such as forex trades or contracts depending on their registration in the U.S. SEC’s 1933 Securities Act.
The U.S. Treasury issues T-bills and T-bonds. Historically, most believe that investing in the U.S. Treasury is low risk as there is a government guarantee, meaning you won’t lose your original investment and accrued interest. The downside is the low interest rate. The government guarantee is the government’s full faith and credit. This means that your investment has 0% of being defaulted, or not being paid back with what you are owed. The reason that the U.S. government can do this is because they have the power to increase taxes or print more money to pay back their debt.
What is Not Insured:
There are some financial instruments that are not protected by any federal insurance agency. For example, annuities (fixed sums paid yearly for the rest of a lifetime) are not protected by a federal agency, only by what the issuing firm has guaranteed. This means if the issuer defaults or fails, you could stop receiving your annuity if you had registered for one.
There are many other investments that aren’t covered in this article, and they may have their own protection in certain situations or not. Make sure to always do your research before jumping headfirst into investing your money.
Written by Allie Chang