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Difficulty: EasySIPC vs. FDIC Protection and Coverage Limits

Which of the following statements accurately describe the protection limits and coverage scope of SIPC and FDIC insurance?

  1. SIPC protects customer accounts against broker-dealer insolvency up to 500,000totalperseparatecustomer,includingupto500,000 total per separate customer, including up to 250,000 for cash claims.Answer
  2. B
    SIPC reimburses retail investors for market losses suffered during broad financial market downturns.
  3. FDIC insurance covers deposit accounts at insured commercial banks up to $250,000 per depositor, per bank.Answer
  4. D
    FDIC insurance protects mutual funds and stock positions held in retail brokerage accounts up to $250,000.

Answer

SIPC coverage provides protection against broker-dealer insolvency up to 500,000totalperseparatecustomer(witha500,000 total per separate customer (with a 250,000 cash sublimit), while FDIC insurance protects commercial bank deposit accounts up to $250,000 per depositor.
SIPC covers securities and cash against broker-dealer insolvency up to 500,000(includingupto500,000 (including up to 250,000 for cash), while FDIC insures traditional bank deposits up to $250,000 per depositor against bank insolvency.

Step-by-Step Solution

1
Evaluate SIPC coverage rules and limits.
SIPC covers customer claims in the event of broker-dealer failure up to 500,000total,witha500,000 total, with a 250,000 cap on cash claims. SIPC does not protect against market risk.
SIPC is designed to restore missing cash and securities held at insolvent broker-dealers, not compensate for bad investments.
2
Evaluate FDIC coverage rules and limits.
FDIC insures traditional bank deposits (checking, savings, CDs) up to $250,000 per depositor per bank. It does not cover brokerage products such as stocks or mutual funds.
FDIC protects bank depositors against commercial bank failure, distinct from investment accounts covered by SIPC.

Key Concept

SIPC vs. FDIC Protection Scope and Coverage Limits
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SIPC vs. FDIC Protection and Coverage Limits

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