Understanding FDIC, NCUA, SIPC, and State Insurance Guaranty Funds: How Your Money and Policies Are Protected
When managing your finances, it’s crucial to understand how different types of financial protections work. Many consumers assume that their bank accounts, investments, and insurance policies are fully protected, but different organizations have different types of coverages.
The Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Securities Investor Protection Corporation (SIPC), and State Insurance Guaranty Funds each play a unique role in safeguarding consumers’ financial assets.
This article breaks down how each of these institutions works, what they insure, and common misconceptions.
FDIC - Federal Deposit Insurance Corporation
The FDIC is an independent U.S. government agency that protects depositors in the event of a bank failure. This coverage applies to commercial banks (think Chase, Bank of America, Citibank, etc) and even some money accounts at investment companies have FDIC coverage.
What FDIC Covers
- Checking accounts
- Savings accounts
- Money market deposit accounts (MMDAs)
- Certificates of deposit (CDs)
- Cashier’s checks, money orders, and other official bank-issued instruments
What FDIC Does Not Cover
- Stocks, bonds, or mutual funds
- Life insurance policies
- Annuities
- Municipal securities
- Safe deposit box contents
- Cryptocurrency holdings
FDIC Coverage Limits
Deposits are covered up to $250,000 per depositor, per bank, per ownership category. While most depositors are well under these limits, a few may run into the caps so it’s important to understand the concept further to ensure your deposits are insured. Consider this example which shows you can you boost your deposits at a single institution for a couple:
- $250,000 for Spouse 1’s individual checking
- $250,000 for Spouse 2’s individual checking
- $500,000 for a Joint account with Spouse 1 and Spouse 2
- $500,000 for a revocable trust owning a checking account with 2 kids as beneficiaries.
At a single institution, FDIC coverage can go even higher if you introduce joint accounts with kids, IRA’s at the bank, and business accounts.
You can easily double your coverage by having funds at two different FDIC insured banks.
To calculate your coverage, you can use a calculator from FDIC: FDIC: Electronic Deposit Insurance Estimator (EDIE)
NCUA - Federal Deposit Insurance Corporationredit Union Administration
The NCUA provides similar protection to FDIC, but for federally insured credit unions instead of banks. It operates the National Credit Union Share Insurance Fund (NCUSIF) to safeguard depositors’ money. Banks like Navy Federal Credit Union, PenFed Credit Union, and State Employees’ Credit Union fall under NCUA.
What NCUA Covers
- Checking accounts (share draft accounts)
- Savings accounts (share accounts)
- Money market accounts
- Certificates of deposit (share certificates)
- Certain retirement accounts (IRAs, Keoghs)
What NCUA Does Not Cover
- Stocks, bonds, or mutual funds
- Life insurance policies
- Annuities
- Safe deposit box contents
- Cryptocurrency holdings
NCUA Coverage Limits
NCUA coverage works very similar FDIC covering $250,000 per depositor, per credit union, per ownership category.
SIPC - Securities Investor Protection Corporation
The SIPC protects clients of brokerage firms in the event of firm failure, but it does NOT protect against losses due to market fluctuations. The primary function of SIPC is to restore missing securities and cash from a failed brokerage firm. This applies to firms like Charles Schwab, Vanguard, and Fidelity.
What SIPC Covers
- Stocks, bonds, and other securities
- Cash in a brokerage account (up to limits)
- Mutual funds and ETFs
- Treasury securities
- Certain registered investment products
What SIPC Does Not Cover
- Market losses
- Promissory notes
- Commodity futures contracts
- Investment contracts or limited partnerships not registered with the SEC
- Annuities and life insurance policies
- Cryptocurrency holdings
SIPC Coverage Limits
SIPC covers up to $500,000 per customer, including up to $250,000 for cash in a brokerage account. Some firms may provide higher levels than this by purchasing additional coverage through other insurers.
State Insurance Guaranty Funds
State insurance guaranty funds provide protection if an insurance company becomes insolvent. These funds operate at the state level and are typically funded by insurance company assessments. Unlike FDIC, NCUA, and SIPC, coverage limits vary by state and by type of policy.
What State Insurance Guaranty Funds Covers
- Life insurance policies
- Health insurance policies
- Annuities
- Disability insurance
- Long-term care insurance
- Auto and homeowners insurance (in some states)
What State Insurance Guaranty Funds Does Not Cover
- Policyholder losses beyond state-specific limits
- Variable annuities tied to market performance
- Self-insured health plans
- Policies from unlicensed insurance companies
- Employer-provided benefits in certain cases
State Insurance Guaranty Funds Coverage Limits
Vary by state but often include:
- $300,000 for life insurance death benefits
- $100,000 for cash surrender value of life insurance
- $250,000 for annuities
- $500,000 for health insurance benefits