SIPC Coverage: What Is and Is Not Protected If Your Broker Fails

If your broker filed for bankruptcy on a Tuesday morning, the first thing you’d want to know is whether the shares on last month’s statement are still yours. They usually are. What most people get wrong is the second question: whether SIPC hands back the dollar amount printed at the bottom of that statement, or something considerably less.

Here’s the answer up front. SIPC replaces missing securities and cash up to $500,000 per customer per separate legal capacity, and no more than $250,000 of that total can be cash. It does not reimburse you a cent for a stock that fell. Those two constraints — the total cap and the cash sub-limit inside it — are where the surprises live.

Meet Marisol, and the account we’ll follow

Marisol has $840,000 with one brokerage firm, split across two accounts. The taxable individual account holds $610,000: $460,000 in stocks and ETFs, $150,000 sitting in the sweep as uninvested cash after a sale that hasn’t been redeployed. The traditional IRA holds another $230,000, fully invested.

Suppose the firm collapses in March and the trustee finds that customer property is short. What does Marisol get back?

The IRA is easy. It’s a separate legal capacity, it’s under $500,000, and it’s all securities. Fully within the limit: $230,000.

The taxable account takes more arithmetic. The $150,000 cash is below the $250,000 cash ceiling, so all of it counts. That leaves $350,000 of headroom under the $500,000 total, which the securities fill and then some — Marisol holds $460,000 of them. Covered: $500,000. Uncovered: $110,000.

Across both accounts, Marisol’s statutory protection is $730,000 against $840,000 of assets. The $110,000 gap doesn’t vanish — it becomes a claim against whatever the failed firm’s estate can return.

What SIPC actually does

The Securities Investor Protection Corporation was created by Congress for one narrow job: stepping in when a brokerage firm fails and can’t return what belongs to customers. SIPC’s own explainer describes it as working to return missing stocks, bonds, and cash held at the failed firm, up to the statutory limit.

Read that again with the emphasis on missing. SIPC insures custody, not value. If Marisol’s 400 shares of some industrial name are sitting where they should be in the firm’s records, SIPC has nothing to do. The trustee moves the account to a surviving broker and Marisol logs in somewhere new. If those 400 shares are gone — sold off in the firm’s death spiral, never properly segregated, lost in broken recordkeeping — that’s when the limit becomes the number that matters.

This is also why the comparison to FDIC insurance misleads people. FDIC guarantees a dollar amount on a deposit. SIPC guarantees the return of specific property. A $100,000 stock position that falls to $60,000 during a market rout has produced a $40,000 loss, and SIPC pays exactly zero toward it, because nothing went missing. The broker still has the shares. They’re just worth less than they were.

The assumptions behind every figure here

• The statutory limit is $500,000 per customer per separate capacity, with $250,000 as the maximum cash portion inside that total.
• “Separate capacity” means a genuinely distinct legal ownership type at the same SIPC member firm — individual, joint, IRA, trust.
• Every scenario assumes a firm failure with a shortfall in customer property. Recoveries from the failed firm’s remaining assets are not modeled, and in practice they can shrink or erase the gap.
• Cash means uninvested cash balances. Money market fund shares are securities for SIPC purposes, which is a distinction with real consequences, as the next section shows.
• These are illustrations built from the published limit structure. They’re not a recovery estimate for any particular firm or account.

Why the cash sub-limit bites harder than people expect

Return to Marisol in March. Say the sale that left $150,000 in the sweep had instead been a full liquidation — everything out of the market, $610,000 in cash, waiting for a better entry point.

Coverage collapses to $250,000. The gap widens from $110,000 to $360,000, on an account whose total value never changed.

That’s the part nobody expects from a “protected up to $500,000” headline. The $250,000 cash ceiling isn’t a proportional haircut; it’s a hard stop. Dollars of cash past $250,000 aren’t reduced in coverage, they’re outside it, and the securities side of the account can’t be stretched to cover them.

The formula is worth stating plainly, because it explains the whole shape of the table below. Covered amount equals the cash up to $250,000, plus securities up to whatever remains of the $500,000 after that cash is counted.

Run Marisol’s $610,000 taxable account at different cash mixes:

Coverage holds flat at $500,000 all the way up to $360,000 in cash. Then it starts falling, and it falls dollar for dollar with every additional cash dollar after that.

The pivot sits where securities drop below $250,000. Above that line, there’s enough securities value to fill the headroom the cash cap leaves behind. Below it, the headroom goes unused and coverage bleeds away. For Marisol’s account size, the tipping point is $360,000 of cash — not a number anyone would guess from the marketing language.

One practical wrinkle follows directly from the assumptions above: because money market fund shares count as securities rather than cash, the same balance can land on either side of this table depending on where the sweep program parks it. A firm that sweeps to a money fund and a firm that holds a straight credit balance produce different SIPC arithmetic for an identical dollar amount.

Capacities multiply coverage; account numbers don’t

Marisol’s IRA got its own $500,000 ceiling because an IRA is a different legal capacity from an individual taxable account. Opening a second individual taxable account at the same firm would have done nothing at all — two accounts in the same name at the same firm get combined and share one $500,000 limit.

The capacities that count as distinct are the ones the law treats as distinct owners: an individual account, a joint account with a spouse, a traditional IRA, a Roth IRA, a trust, a custodial account for a child. Stack enough of them and a household’s protected total climbs well past $500,000 without any single account exceeding it. A couple with two individual accounts, one joint account, and two IRAs is looking at five capacities at a single firm.

Moving assets to a second brokerage firm also creates a fresh set of limits, because the caps apply per firm. But that only helps if the ownership structure is real. Splitting $1,000,000 between two firms while holding both accounts in your own name gives you two $500,000 limits; splitting the same money into two individual accounts at one firm gives you one.

None of that is a suggestion to restructure anything. It’s the reason a large portfolio sitting entirely in one account at one firm has a different protection profile than the same money spread across a household’s real legal structures, and the reason the split only counts when it follows actual titling rather than convenience.

Where these numbers overstate the damage

The gap figures above are a worst case dressed as a baseline, and it’s worth saying why.

In a typical brokerage liquidation, most customer property is still there. The trustee gathers what the firm holds, allocates it to customers, and only reaches for SIPC’s fund to cover what’s genuinely short. Marisol’s $110,000 gap is the exposure that SIPC’s guarantee doesn’t reach — not a prediction that $110,000 disappears. Depending on how much property the estate holds, the real out-of-pocket loss could be a fraction of that, or nothing.

The honest position is that you can’t know the recovery rate in advance for a firm that hasn’t failed yet. What you can know is the statutory floor. Plan around the floor.

Two other factors cut the other way, toward worse outcomes than the arithmetic suggests. Some assets aren’t covered at all, at any value: commodity futures contracts, currency, most cryptocurrency held directly rather than as a registered security, and investment contracts that were never registered as securities. And some firms holding customer assets aren’t SIPC members in the first place — certain offshore brokers, most crypto platforms, and anything operating outside registration. No amount of account splitting creates coverage where membership doesn’t exist.

Titling problems are the quiet one. An individual account and a sole-proprietorship business account under the same person can be combined for SIPC purposes depending on how they’re documented. The capacity math above assumes clean, distinct legal ownership. Sloppy titling merges accounts back into a single limit without anyone noticing until it matters.

There’s also the question of what “failure” means. SIPC’s process addresses missing customer property when a member firm fails. It isn’t a general remedy for investment fraud. If someone was sold a fabricated investment that never consisted of real securities held at a real firm, the machinery works differently than people assume.

What margin debt does to this picture

SIPC protects what’s custodied for you. It says nothing about what you owe.

If Marisol had borrowed $200,000 on margin against that $460,000 securities position, the coverage arithmetic wouldn’t change, but the economics would. The SEC’s investor guidance on margin accounts walks through how borrowed money magnifies both gains and losses in ordinary market conditions. In a firm failure, the debt is a separate obligation that gets resolved against the account, and the $500,000 figure was never a net number to begin with.

What this does not tell you

These figures show statutory limits and coverage arithmetic. They are not a recovery estimate for any specific brokerage failure.

They say nothing about timing. SIPC liquidations have historically taken anywhere from months to a few years depending on how tangled the firm’s records are, and an account you can’t trade during a market move is a cost that doesn’t show up in any coverage table.

They also ignore excess-SIPC insurance. Several large brokers carry private policies that extend protection well above the statutory numbers, with their own terms, their own aggregate limits across all customers, and their own exclusions. Whether your firm carries one, and what it actually covers, is a question for your firm’s disclosures rather than for a coverage formula.

And they say nothing about the risk that actually moves retail portfolios. For most investors in most years, ordinary market drawdown dwarfs anything SIPC exists to address. Marisol’s $110,000 statutory gap is a real number. So is the fact that a 20% market decline would take $168,000 off the same $840,000 in a scenario with no broker failure at all, and no protection scheme of any kind applies to it.

FAQ

Does SIPC cover losses if my stock goes down in value?

No. SIPC replaces missing securities and cash when a brokerage firm fails. It doesn’t compensate for a security losing market value. A $50,000 position that falls to $30,000 stays a $30,000 loss whether or not your broker is healthy.

Is SIPC coverage per account or per person?

Per customer, per separate legal capacity, at each SIPC member firm. Two individual accounts in your own name at the same firm are combined into a single $500,000 limit. An individual account and an IRA are treated as separate capacities and get $500,000 each.

How much cash can I hold in a brokerage account and stay fully SIPC-covered?

Up to $250,000 of cash counts toward the $500,000 limit. Cash beyond $250,000 isn’t covered at all, even if your total account value sits below the overall cap. Whether a sweep balance counts as cash or as a money market fund security changes the answer, so check how your firm holds it.

Does SIPC protect cryptocurrency held at a brokerage?

Generally no. Direct crypto holdings fall outside SIPC’s definition of covered securities. The exception would be a crypto-linked asset that is itself a registered security custodied by the firm, which is a much narrower category than most account holders assume.

What happens if my broker goes bankrupt but nothing is missing?

Then SIPC’s limits never come into play. A court-appointed trustee transfers your account to another SIPC member firm and you may never file a claim. The protection only becomes relevant when customer property is genuinely missing or can’t be reconciled against the firm’s records.

Does splitting my money across two brokers double my coverage?

It creates a separate set of limits at each firm, so in that sense yes. But if both accounts are in the same individual name, you have two $500,000 limits rather than one $1,000,000 limit, and the cash sub-limit applies separately inside each. Splitting into two same-name accounts at a single firm accomplishes nothing.

Where to look on your own statement

Two lines matter more than the total. Find how much of your balance is uninvested cash versus invested securities, since that split moves your coverage more than account size does once you’re near the caps. Then check how each account is titled — not what you call it, but what the legal ownership actually is — because that’s what determines whether your accounts get separate limits or share one.

This article is general information, not financial advice. See our disclaimer.

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