Etrade is easily one of the most established brokerage firms out there. But even big banks and financial service firms have proved that they can fail no matter how old or how well-protected they are by the government. So, if you are an Etrade customer or you’re planning to be, you need to know: are Etrade accounts FDIC insured?
Yes, Etrade has FDIC protection for checking, savings, and sweep deposit accounts. The checking and international sweep deposit accounts are FDIC insured to at least $250,000 per depositor (except for the sweep deposit joint accounts that are insured to $500,000). And the savings and extended sweep deposit accounts are insured to $1,250,000 per depositor (except for the latter if it’s a joint account which is covered up to $2,500,000).
In this article, I will also answer whether the brokerage accounts offered by Etrade are also insured and go into a bit more detail regarding FDIC protection. I will also outline the basic differences between FDIC and SIPC protection.
Sounds good? Let’s get into it right away…
Are Etrade Brokerage Accounts Protected?
Etrade offers FDIC protection only for their bank accounts because these are the accounts this type of insurance was created for.
Their brokerage accounts are insured by the Securities Investor Protection Corporation (SIPC). This is a non-profit corporation that was created by Congress to protect investors having accounts in brokerage firms that are forced into bankruptcy.
All brokers who are registered under the Securities Exchange Act of 1934 are members of the SIPC. Etrade is, of course, a member as well, they qualify for this kind of insurance.
Now, SIPC will protect your brokerage account up to $500,000 for securities and cash.
Here’s the interesting part. Morgan Stanley offers additional coverage with an aggregate limit of $1 billion. Since Morgan Stanley has acquired Etrade, you will be covered under Morgan Stanley’s excess of SIPC supplemental insurance policy.
FDIC vs SIPC
As we have already said, the basic difference between FDIC and SIPC is that the first covers bank accounts and the latter brokerage ones. There is also a difference when it comes to the amount each provider covers. FDIC generally covers cash accounts to $250,000 and SIPC covers brokerage accounts to $500,000.
Another important difference is that the SIPC will cover up to $500,000 for investments but will only cover $250,000 when it comes to cash. This discrimination doesn’t apply to FDIC insured accounts since they’re basically cash accounts.
FDIC Insurance: What Is It and How Does it Work?
The Federal Deposit Insurance Corporation (FDIC) is an insurance agency that was created by Congress to insure cash deposits and regulate financial institutions.
The accounts that FDIC insures are as follow:
- Checking Accounts
- Savings Accounts
- Money Market Deposit Accounts
- Certificates of Deposit
Here are a few examples so you understand how FDIC insurance actually works…
Individual Account: Let’s say that you have $250,000 deposited in an FDIC-insured bank. But let’s also assume that you open another account with the same bank that has $100,000. Since FDIC insurance works “per depositor”, that means that you are insured up to $250,000 no matter how many more accounts you open with the same bank.
Joint Account: Now, if you open a joint account with your spouse, things are different. You will be compensated up to $500,000 if the bank files for bankruptcy.
In Which Scenario Does FDIC Cover you?
The FDIC Insurance will cover you if the bank which you have your money deposited in files for bankruptcy. Usually, you are going to receive the insured amount within a few days either by getting a new account to another bank or through a check.
Another important question is whether FDIC has ever paid out any bank.
Absolutely. Though you might think that banks don’t fail every day, they do fail now and then.
As of 2011, FDIC has paid out $8.89 billion to failing banks, so you can be sure that in a worst-case scenario, your money is safe. That is, as long as it’s less than $250,000 if you have an individual account in only one bank.
As you can see, Etrade’s checking and savings accounts are insured by FDIC. And their sweep deposit accounts are FDIC insured as well. Here’s a list with every kind of account that is insured by FDIC and the corresponding insurance limits:
- Checking Accounts: At least $250,000 per depositor
- Premium Savings Accounts: At least $1,250,000 per depositor
- Extended Sweep Deposit Accounts: Up to $1,250,000 per depositor ($2,500,000 for joint accounts)
- International Sweep Deposit Accounts: Up to $250,000 per depositor ($500,000 for joining accounts)
Keep in mind that brokerage accounts on Etrade are also insured but by the SIPC. These are covered up to $500,000 for investments and cash. But remember that when it comes to cash, you will be covered for up to $250,000 instead.
Did this article answer your question? If so, could you please take a moment and share it with others? And if you have any questions, you can let me know in the comments below. I will get back to you as soon as I can.
Thank you for reading and I’ll talk to you next time…
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