Reputable brokerages offer insurance. Just as the FDIC insures bank accounts, the Securities Investor Protection Corporation (SIPC) insures brokerage accounts up to $500,000 per account (including up to $100,000 in cash). Note, though, that this insures your account against your brokerage going under, not your stocks losing value. (Sorry!) For more details on exactly how this coverage works, take a look at this article.
Many brokerages even provide additional insurance in excess of the amounts provided by the SIPC. Brokerage firms are required to become members of the SIPC, but there might be a shady brokerage or two out there that somehow isn't insured.
Ask your brokerage (or prospective brokerage) for clarification on what insurance protection it offers. The folks at the SIPC suggest that you look for the words "Member SIPC" on signs and in advertisements of brokerage firms. If you're still not sure whether your brokerage account is protected, you can contact the SIPC directly, either by calling their membership department at 202-371-8300 or by visiting their website.
You can count on large financial institutions like Merrill Lynch (NYSE: MER ) , Raymond James (NYSE: RJF ) , and Charles Schwab (Nasdaq: SCHW ) to have strong insurance protection. With smaller firms, though, you might want to be more careful that you're getting the insurance protection you need. Learn more about brokerages at our Broker Center, where we help you compare brokerages and offer tips on how to find the one best suited to your particular needs. Although you might be attracted to the brokerage with the lowest commissions, you may find that when you consider other factors, that brokerage won't necessarily be the best one for you.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.