When it comes to your investment accounts, you do not want to invest with a broker that does not provide some sort of insurance. This is why when you invest through a broker, you need to make sure that your account is insured. What about TD Ameritrade, though? Is your money safe with them?
In short, yes. TD Ameritrade covers up to $500,000 for each brokerage account when it comes to securities and up to $250,000 for cash.
In this article, I am going to:
- Discuss how exactly TD Ameritrade keeps your account protected,
- Detail what you need to do to make sure your account remains insured, and
- Tell you whether TD Ameritrade accounts are FDIC-insured or not
How are TD Ameritrade Accounts Insured?
There are three main ways through which TD Ameritrade ensures the accounts and assets of its clients are protected. Since TD Ameritrade carries out a large chunk of its operations online and a lot of clients transact online, most of this protection is also online.
TD Ameritrade’s supplemental coverage is designed to protect the clients in the case of broker insolvency. Although this is not always available for a client’s account, it protects the customer if the brokerage service ever goes bankrupt.
Insolvency refers to a state of financial distress where the business (or person) in distress cannot pay their bills. In case of broker insolvency, TD Ameritrade clients will receive payments from trustees in bankruptcy and the SIPC. Supplemental coverage then comes in after these two.
Under the supplemental coverage, each client is provided with $149.5 million worth of protection for securities and up to $2 million in cash protection. According to TD Ameritrade, this supplemental coverage is provided by London insurers. However, this coverage has an aggregate limit of $500 million for all customers.
It is also important to note that supplemental coverage does not protect against any loss in the market.
The SIPC stands for the Securities Investor Protection Corporation. In the late 1960s, it was designed to provide insurance safety should a member brokerage fail. TD Ameritrade is a member of the SIPC and so, TD Ameritrade brokerage accounts get SIPC protection.
The SPIC provides up to $500,000 in securities protection for customers of its members with $250,000 for claims of cash. However, this protection is only available for accounts that have what is known as separate capacity. Separate capacity means when you have two accounts at the same brokerage that are fundamentally the same, you will qualify for only one $500,000 protection.
However, when you have two or more fundamentally different accounts, each account will qualify for a separate $500,000 protection, even when they are all with the same brokerage. For instance, a joint and individual account will give you different $500,000 protections even when your name is on both. However, two individual accounts in your name with TD Ameritrade will give you only one $500,000 protection.
It is necessary to point out that the SIPC protection does not cover investments in futures contracts, fixed annuity contracts, investments in limited partnerships, or foreign exchange trades.
TD Ameritrade Asset Protection Guarantee
The brokerage protects the accounts of customers on a day-to-day basis through the TD Ameritrade Asset Protection Guarantee.
The asset protection guarantee protects customers from any loss that might occur because of unauthorized activity on your brokerage account. When this happens, TD Ameritrade reimburses any customer affected for the assets lost, be it cash or securities.
In a situation like this, to qualify for reimbursement, TD Ameritrade will have to ensure that the activity that led to the loss of assets didn’t come by the customer. Besides, actions taken at your request or by people you have granted access to your account will not qualify as unauthorized activity and will not lead to reimbursement.
What do You Need to Do to Keep Your Account Insured?
To qualify for the supplemental coverage and SIPC protection, you do not need to do much since they only come if the brokerage fails. However, to be eligible for asset protection, TD Ameritrade requires that you take some steps with your account. I will go over those in detail:
1. Customers will need to keep their personal identifying information like passwords and PINs secure and confidential.
Sharing this information with others means you have given them the authorization to take action on your account on your behalf. Likewise, granting others the ability to access your account with biometrics or facial recognition will imply you have given them authority to act on your behalf.
2. Customers will need to use the standard security features TD Ameritrade requires to protect their accounts, even as these features change over time.
All security features must also be used in the manner the broker intends they be used.
3. Your contact information, including phone number and email, must be kept up-to-date with TD Ameritrade.
This is necessary should the broker need to contact you in case of suspected fraud.
4. Customers are required to review their accounts and account statements promptly.
This is to allow them to detect and then report any suspicious or unauthorized activity to the broker.
5. If a customer account is compromised, the customer will need to cooperate with the investigation and take every action requested by the broker.
It is necessary to point out here that protection might not be available in the event of acts of God, acts of war or terrorism, or activities of nation-states.
Are TD Ameritrade Accounts FDIC Insured?
To answer this question directly, no, TD Ameritrade accounts are not FDIC insured.
Now, should you be worried about this? Not at all! FDIC is to banks what the SIPC is to brokerage houses. This means that the FDIC and the SIPC are similar organizations. The only difference is that while the FDIC provides protection for banks, the SIPC is responsible for providing the same level of protection to brokerage houses.
However, this does not mean that TD Ameritrade doesn’t have any sort of FDIC insurance. All Certificates of Deposit purchased through TD Ameritrade are issued by banks insured by the FDIC.
What are Certificates of Deposit? They are products issued by banks that give a specific interest rate to the purchaser in exchange of a lump-sum. When you invest in a CD, you get a set interest rate over a specific period. When you buy a CD through a broker like TD Ameritrade, you can trade it on the open market.
Finally, cash in a customer’s account could be held in a TD Ameritrade FDIC Insured Deposit Account (IDA). To ensure these accounts remain protected, they are opened with FDIC-insured banks that protect all accounts for up to $250,000 per depositor.
All in all, TD Ameritrade customer accounts are well protected. You can rest assured that your money is safe with this broker.
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