Is Your Brokerage Insured?

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. Additional funds may be secured beyond the $500,000 once the liquidation cost of the brokerage is taken into account. Note, though, that this insures your account against your brokerage going under, causing stocks and securities to go missing from your account -- not because your stocks are losing value. (Sorry!)

We should take a moment to examine what investments the SIPC will cover and what it will not. According to the SIPC website, it will replace the following: "The cash and securities -- such as stocks and bonds -- held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933."

Many brokerages even surpass SIPC levels of insurance. Still, there might be a shady brokerage or two out there that somehow isn't insured. To check whether your brokerage or the brokerage that you're considering is a member of the SIPC, you can search the SIPC member database. Or you can call the SIPC Membership Department at 202-361-8300. One telltale sign that a brokerage belongs to the SIPC is its signs and ads. Oftentimes, members will have the words "Member SIPC" on ads, signs, and websites. Also, ask your brokerage (or prospective brokerage) for clarification on what insurance protection it offers.

Learn more about brokerages by visiting our Broker Center, where we help you compare brokerages and offer tips on how to find the one best suited to your particular needs through tools like our handy table that compares discount brokerages side by side. Surprisingly, the brokerage with the lowest commissions isn't necessarily the best one for you, depending on your investing and convenience needs. So when selecting a brokerage, make sure you do some Foolish research, such as determining whether it is SIPC insured.