How Are Brokerage Money Market Accounts Insured or Protected?

Money market accounts are FDIC-insured.

Many brokers these days offer money market accounts that are FDIC-insured. There are also several layers of additional protection: SIPC insurance, broker bank selection and multiple bank coverage.

FDIC Insurance

The Federal Deposit Insurance Corp. provided insurance of up to $250,000 as of 2010. Visit the FDIC website for additional information on how coverage limits are calculated for differently registered accounts.

Brokers Are Intermediaries

The FDIC covers only banks; a broker merely links your brokerage account with a bank money market account electronically, but your money is actually at the bank. Make sure that the broker clearly states that the account you are interested in is FDIC-insured.

SIPC Insurance

The Securities Investor Protection Corp. provides insurance in case your broker goes under. Any cash or securities missing from your account is covered. The actual amount of coverage varies from broker to broker, but you should definitely deal only with those who prominently display SIPC coverage and the amount on their website. If you find a great deal on a money market account from a broker you've never heard of, don't worry--the SIPC coverage will protect you if that broker is covered.

Bank Selection

Brokers realize that investors want FDIC-insured accounts for safety, and they select banks accordingly. The last thing they want is the headache of the bank going under, antagonizing investors.

Several Banks Under One Roof

If you have more than $250,000 in the account, some brokers spread your money across several banks to obtain maximum FDIC coverage from each one. You don't have to worry about keeping track of the deposits: They are all detailed on your monthly brokerage statement.

Warning

Beware of high yields or deals that sound too good to be true, especially if they are liberally sprinkled with the words "guarantee," "insured" and "safe" but without a clear reference to FDIC or SIPC.

Caution

Make sure you understand the difference between money market accounts and money market funds. Money market funds are offered by mutual fund companies and brokerages and are also liquid and considered safe. Retail investors have never lost money in a money market fund, but there is no guarantee.

References

• FDIC
• SIPC