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I'm considering opening a brokerage account with a broker that is requesting $10,000 minimum funding. That money will not go to an FDIC covered bank account. But the broker does have an SIPC insurance. I understand that SIPC covers $250,000 of the cash sitting in a brokerage account. My question is: is that $250,000 coverage as strong and reliable as FDIC's $250,000 coverage?

I've read somewhere that SIPC only covers cash that took part in some stock transaction, and it does not cover "idle cash" that the account owner just wired in. Is it true?

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    I think you meant to write SIPC (Securities Investor Protection Corporation) and not SPIC. I've edited to correct. If you meant otherwise, please let us know. – Chris W. Rea Jan 14 '14 at 21:40
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For cash, SIPC insurance is similar to FDIC insurance. Your losses are not covered, but you're covered in case of fraud.

Since your cash is supposed to be in a trust account and not commingled with brokerage's funds, in case of bankruptcy you would still have your cash unless there was fraud.

  • Thanks! So if the broker has SIPC coverage - the cash in the trust account is covered (up to $250,000) even if it never had anything to do with any transactions (and was simply wired by account owner - and was "idle" ever since)? – Ofer Jan 14 '14 at 22:15
  • @Ofer no, the cash will be covered by FDIC. SIPC will cover it if there was fraud and the cash is not in fact in the trust account. If it is - it will be covered by FDIC by the virtue of the trust account being a bank account. – littleadv Jan 14 '14 at 23:19
  • strange. Their representative (Interactive Brokers) told me (if I understood her correctly) that the cash I'm wiring in won't be FDIC covered (which is unlike another broker I know that sweeps the cash to an FDIC-insured bank account). – Ofer Jan 14 '14 at 23:27
  • @Ofer that particular broker is not in the US and their bank account used for trust accounts is not under FDIC coverage. So that is why they said what they said. FDIC insures US banks. SIPC insures brokers operating in the US. So IB is covered by SIPC, but the trust account is not covered by FDIC. SIPC doesn't insure losses, so if the bank which holds it goes kaput - you may lose your money. – littleadv Jan 15 '14 at 4:36
  • Thanks again! Really appreciate your help. Are you sure about IB not being in the U.S.? According to wiki their headquarters is in Connecticut, USA. – Ofer Jan 15 '14 at 13:30

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