Safety net for investors

October 14, 2008 3:49:41 PM PDT
By now, most consumers know that if their bank fails, they're protected by the FDIC.But do you have any protection when it comes to your brokerage firm and your stocks and bonds?

The bad news is there is no such thing as insurance for stocks and bonds. You're just out of luck if your securities lose value.

However, if your brokerage firm is a member of something called the SIPC, you do have a safety net if that firm goes out of business.

Bernice Blakey of Lawnside New Jersey plans to retire within 10 years. Even with the market rebound this week, she's worried.

"I'm very concerned. I want to konw the difference between the FDIC and the SIPC," Blakey said. "Where would my money be safe, in which institution?"

By now, most consumers know the FDIC is the Federal Deposit Insurance Corporation. If your bank is FDIC-insured and fails, the federal government will guarantee your deposits dollar-for-dollar up to a certain limit.

SIPC stands for Securities Investor Protection Corporation. Make sure you're brokerage firm is a member.

"It simply provides you the opportunity to get back your property in the event of the failure of a brokerage," said Chris Coyn of St. Joseph's University.

SIPC does not cover fraud claims. It just helps you get back the cash and securities that are missing from your account when a brokerage firm fails and closes its doors.

But advances are capped at $500,000 per customer, and you can only get back up to $100,000 of the cash the firm was holding.

As far as stocks and bonds go - You can get back the certificates but not the cash value of those securities.

Another difference between FDIC and SIPC: When a bank fails, your deposits are automatically protected. You don't have to do a thing.

But, when a brokerage firm shuts down and is liquidated, you have to file a claim within a certain time frame to get your cash and securities back.

For more information:

SIPC

FDIC


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