Your Questions Answered: Are My Investments FDIC Insured?

Recently a long-time client sold a vacation home and placed the proceeds in her brokerage account. While on a Zoom call along with her son and daughter, she asked me if her account was FDIC insured.

I wish this was a simple yes or no answer, but it’s not.

Now, the brokerage custodian that we use has an FDIC insured cash account. This means that the cash in the account is insured up to a certain limit.

On top of that, all brokerage accounts are covered by SIPC (Security Investors Deposit Corporation) insurance, up to certain limits. This covers investors in the event of the failure of their brokerage firm. Neither FDIC or SIPC coverage protects investors from declines associated with the rise and fall in the market value of investments.

Which brings us back to our client. The proceeds of her vacation home were invested in an ultra-short term bond fund. This fund invests in hundreds of bonds from dozens of issuers. The credit ratings of the issuers and the maturities of the bonds have made it historically a very low-volatility investment, but it is not FDIC insured.

When I explained the structure of the fund and how her money was spread out over many different issuers, her concern about FDIC insurance evaporated.

But how you feel about it might be different. We had another client that wanted their shortterm cash in FDIC-insured instruments only. And that’s okay.

The big takeaway here is to always bring up these kinds of questions. They are legitimate, and you deserve to have them answered without being made to feel foolish or trivialized. And if you don’t have a financial professional that can do that for you, I can refer you to dozens that will.